Is Matson, Inc.'s (NYSE:MATX) Stock's Recent Performance Being Led By Its Attractive Financial Prospects?

Matson, Inc. -1.25%

Matson, Inc.

MATX

108.42

-1.25%

Most readers would already be aware that Matson's (NYSE:MATX) stock increased significantly by 24% over the past three months. Given that the market rewards strong financials in the long-term, we wonder if that is the case in this instance. In this article, we decided to focus on Matson'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.

Check out our latest analysis for Matson

How To Calculate Return On Equity?

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 Matson is:

13% = US$313m ÷ US$2.4b (Based on the trailing twelve months to September 2023).

The 'return' is the profit over the last twelve months. That means that for every $1 worth of shareholders' equity, the company generated $0.13 in profit.

Why Is ROE Important For Earnings Growth?

We have already established that ROE serves as an efficient profit-generating gauge for a company's future earnings. 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.

Matson's Earnings Growth And 13% ROE

To start with, Matson's ROE looks acceptable. Even when compared to the industry average of 13% the company's ROE looks quite decent. This probably goes some way in explaining Matson's significant 42% net income growth over the past five years amongst other factors. However, there could also be other drivers behind this growth. Such as - high earnings retention or an efficient management in place.

We then performed a comparison between Matson's net income growth with the industry, which revealed that the company's growth is similar to the average industry growth of 52% in the same 5-year period.

past-earnings-growth
NYSE:MATX Past Earnings Growth December 30th 2023

Earnings growth is an important metric to consider when valuing a stock. The investor should try to establish if the expected growth or decline in earnings, whichever the case may be, is priced in. This then helps them determine if the stock is placed for a bright or bleak future. Has the market priced in the future outlook for MATX? You can find out in our latest intrinsic value infographic research report.

Is Matson Efficiently Re-investing Its Profits?

Matson has a really low three-year median payout ratio of 6.9%, meaning that it has the remaining 93% left over to reinvest into its business. So it looks like Matson is reinvesting profits heavily to grow its business, which shows in its earnings growth.

Additionally, Matson has paid dividends over a period of at least ten years which means that the company is pretty serious about sharing its profits with shareholders.

Summary

On the whole, we feel that Matson's performance has been quite good. Particularly, we like that the company is reinvesting heavily into its business, and at a high rate of return. Unsurprisingly, this has led to an impressive earnings growth. That being so, according to the latest industry analyst forecasts, the company's earnings are expected to shrink in the future. To know more about the company's future earnings growth forecasts take a look at this free report on analyst forecasts for the company to find out more.

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