Yahoo Finance Are Just Life Group Limited's (NZSE:JLG) Mixed Financials Driving The Negative Sentiment?
With its stock down 12% over the past three months, it is easy to disregard Just Life Group (NZSE:JLG). It seems that the market might have completely ignored the positive aspects of the company's fundamentals and decided to weigh-in more on the negative aspects. Long-term fundamentals are usually what drive market outcomes, so it's worth paying close attention. In this article, we decided to focus on Just Life Group's ROE.
Return on equity or ROE is a key measure used to assess how efficiently a company's management is utilizing the company's capital. Put another way, it reveals the company's success at turning shareholder investments into profits.
View our latest analysis for Just Life Group
How Is ROE Calculated?
The formula for return on equity is:
Return on Equity = Net Profit (from continuing operations) ÷ Shareholders' Equity
So, based on the above formula, the ROE for Just Life Group is:
7.6% = NZ$2.2m ÷ NZ$28m (Based on the trailing twelve months to June 2023).
The 'return' is the yearly profit. Another way to think of that is that for every NZ$1 worth of equity, the company was able to earn NZ$0.08 in profit.
What Has ROE Got To Do With Earnings Growth?
Thus far, we have learned that ROE measures how efficiently a company is generating its profits. Based on how much of its profits the company chooses to reinvest or "retain", we are then able to evaluate a company's future ability to generate profits. Generally speaking, other things being equal, firms with a high return on equity and profit retention, have a higher growth rate than firms that don’t share these attributes.
Just Life Group's Earnings Growth And 7.6% ROE
On the face of it, Just Life Group's ROE is not much to talk about. We then compared the company's ROE to the broader industry and were disappointed to see that the ROE is lower than the industry average of 12%. As a result, Just Life Group reported a very low income growth of 2.3% over the past five years.
We then performed a comparison between Just Life Group's net income growth with the industry, which revealed that the company's growth is similar to the average industry growth of 2.3% in the same 5-year period.
The basis for attaching value to a company is, to a great extent, tied to its earnings growth. It’s important for an investor to know whether the market has priced in the company's expected earnings growth (or decline). This then helps them determine if the stock is placed for a bright or bleak future. If you're wondering about Just Life Group's's valuation, check out this gauge of its price-to-earnings ratio, as compared to its industry.
Is Just Life Group Efficiently Re-investing Its Profits?
The high three-year median payout ratio of 68% (that is, the company retains only 32% of its income) over the past three years for Just Life Group suggests that the company's earnings growth was lower as a result of paying out a majority of its earnings.
Additionally, Just Life Group has paid dividends over a period of six years, which means that the company's management is determined to pay dividends even if it means little to no earnings growth.
Summary
Overall, we have mixed feelings about Just Life Group. While no doubt its earnings growth is pretty respectable, the low profit retention could mean that the company's earnings growth could have been higher, had it been paying reinvesting a higher portion of its profits. An improvement in its ROE could also help future earnings growth. Wrapping up, we would proceed with caution with this company and one way of doing that would be to look at the risk profile of the business. Our risks dashboard would have the 4 risks we have identified for Just Life Group.
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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
