Does the Market Follow Fundamentals?

Most readers will already know that Oxford Industries (NYSE:OXM), stock has increased by 14% in the past three months. We were impressed by the company’s performance and decided to examine its financial indicators more closely. Market outcomes are usually determined by a company’s long-term financial health. We decided to focus our attention on the following: Oxford Industries’ ROE is in this article.

Return on Equity or ROE is a test of how effectively a company is growing its value and managing investors’ money. ROE is short for Return on Equity. It shows how much profit each dollar generates relative to shareholder investments.

See our latest analysis for Oxford Industries

How is ROE calculated?

The formula below can be used to calculate ROE

Return on Equity = Net Profit (from continuing operations) ÷ Shareholders’ Equity

Based on the above formula, Oxford Industries’ ROE is:

30% = US$159m ÷ US$533m (Based on the trailing twelve months to October 2022).

The business’s income over the past year is called the’return. This means that the company makes $0.30 for every $1 invested by its shareholders.

ROE is Important for Earnings Growth

ROE can be used to predict future earnings by a company. We know this because it is an efficient way to measure the company’s profit-generating potential. Depending on how much of these profits the company reinvests or “retains”, and how effectively it does so, we are then able to assess a company’s earnings growth potential. If everything is the same, companies with higher ROEs and higher profit retention will have a higher growth rate than those that don’t.

Comparison of Oxford Industries’ Earnings Growth and 30% ROE

Oxford Industries’ ROE is quite high, which is a good thing. The company’s ROE is also higher than the 21% industry average, which is quite impressive. Oxford Industries has seen a steady increase in net income over the past five years due to this.

Next, we compared Oxford Industries’ net income growth to industry growth rates and found similar results.

past-earnings-growth

past-earnings-growth

Stock valuations are heavily affected by the company’s 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 will give investors a good idea of whether the stock is heading into brighter waters or more turbulent waters. The P/E ratio is a good indicator of expected earnings growth. It determines the price a market will pay for a stock based upon its earnings prospects. This is why you might want to check if Oxford Industries is trading on a high P/E or a low P/EIt is relative to its industry.

Oxford Industries is it reinvesting its profits efficiently?

Oxford Industries’ respectable earnings growth can be explained by its low three year median payout ratio of 19% or retention ratio of 81%. This suggests that the company is using its profits to grow its business.

Oxford Industries is determined not to stop sharing its profits. This can be inferred from the long history of paying at least a dividend every ten years. According to the latest data from our analysts, the future payout ratio for the company is expected at 19% over the next three-years. Oxford Industries’ ROE is therefore not expected to change significantly, which is consistent with the analyst estimate at 26% for future ROE.

Conclusion

We are very happy with the performance of Oxford Industries. We are particularly pleased to see that the company has invested heavily in its business, and that it has experienced a large increase in its earnings. The latest industry forecasts show that earnings growth will slow down for the company. You can read this article to learn more about the company’s future earnings growth predictions. Free report on analyst forecasts for the company to find out more.

Let us know what you think about this article. Are you concerned about the content? Get in touch Get in touch with us. Alternatively, email editorial-team (at) simplywallst.com.

This article is by Simply Wall St. It is general in nature. Our commentary is based on historical data, analyst forecasts and other unbiased information. We do not intend to provide financial advice. This analysis does not represent a recommendation to purchase or sell any stock and it does not consider your financial goals or financial situation. We strive to deliver long-term, objective analysis that is based on fundamental data. Please note that our analysis might not include the latest announcements from price-sensitive companies or qualitative material. Simply Wall St does not hold any position in the stocks mentioned.

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