Will the weakness in Intel Corporation (NASDAQ:INTC) shares prove temporary given the strong fundamentals?
With its stock down 7.2% over the past week, it’s easy to overlook Intel (NASDAQ:INTC). But if you pay close attention, you might realize that its strong financials could mean the stock could potentially see a long-term rise in value, as the markets generally reward companies in good financial shape. In this article, we decided to focus on Intel’s ROE.
Return on equity or ROE is a key metric used to gauge how effectively a company’s management is using the company’s capital. In other words, it reveals the company’s success in turning shareholders’ investments into profits.
Check out our latest analysis for Intel
How is ROE calculated?
the return on equity formula East:
Return on equity = Net income (from continuing operations) ÷ Equity
So, based on the above formula, the ROE for Intel is:
21% = US$20 billion ÷ US$95 billion (based on trailing 12 months to December 2021).
“Yield” is the income the business has earned over the past year. One way to conceptualize this is that for every dollar of share capital it has, the company has made a profit of $0.21.
What does ROE have to do with earnings growth?
So far we have learned that ROE is a measure of a company’s profitability. Depending on how much of those earnings the company reinvests or “keeps”, and how efficiently it does so, we are then able to assess a company’s earnings growth potential. Assuming all else is equal, companies that have both a higher return on equity and better earnings retention are generally the ones with a higher growth rate compared to companies that don’t. same characteristics.
Intel Earnings Growth and 21% ROE
For starters, Intel’s ROE looks acceptable. Even when compared to the industry average of 18%, the company’s ROE looks pretty decent. This certainly adds some context to Intel’s moderate 13% net income growth seen over the past five years.
We then compared Intel’s net income growth with the industry and found that the company’s growth figure is below the industry average growth rate of 20% over the same period, which which is a little worrying.
The basis for attaching value to a company is, to a large extent, linked to the growth of its profits. The investor should try to establish whether the expected growth or decline in earnings, as the case may be, is taken into account. This then helps them determine whether the action is placed for a bright or bleak future. Is Intel valued enough compared to other companies? These 3 assessment metrics might help you decide.
Is Intel Effectively Using Its Retained Earnings?
With a three-year median payout ratio of 27% (implying the company retains 73% of its earnings), it appears Intel is effectively reinvesting in a way to see respectable earnings growth and paying out a healthy dividend. covered. .
Additionally, Intel is committed to continuing to share its earnings with shareholders, which we infer from its long history of paying dividends for at least ten years. Our latest analyst data shows that the company’s future payout ratio is expected to reach 41% over the next three years. Thus, the expected increase in the payout ratio explains the expected drop in the company’s ROE to 14%, over the same period.
Overall, we think Intel’s performance is pretty good. In particular, we appreciate the fact that the company is reinvesting heavily in its business, and at a high rate of return. As a result, its decent revenue growth is not surprising. That said, in studying the latest analyst forecasts, we found that while the company has seen growth in past earnings, analysts expect future earnings to decline. To learn more about the latest analyst forecasts for the company, check out this analyst forecast visualization for the company.
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This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts only using unbiased methodology and our articles are not intended to be financial advice. It is not a recommendation to buy or sell stocks and does not take into account your objectives or financial situation. Our goal is to bring you targeted long-term analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price-sensitive companies or qualitative materials. Simply Wall St has no position in the stocks mentioned.