Weakness in shares of HIVE Blockchain Technologies Ltd. (CVE: HIVE) prove to be temporary given strong fundamentals?
HIVE Blockchain Technologies (CVE: HIVE) had a difficult month with its share price down 26%. However, stock prices are usually determined by a company’s long-term financial performance, which in this case looks quite promising. In particular, we will pay special attention to the ROE of HIVE Blockchain Technologies today.
ROE or return on equity is a useful tool to assess how effectively a company can generate the returns on investment it has received from its shareholders. In other words, it is a profitability ratio that measures the rate of return on capital contributed by the shareholders of the company.
Check out our latest review for HIVE Blockchain Technologies
How do you calculate return on equity?
Return on equity can be calculated using the formula:
Return on equity = Net income (from continuing operations) Ã· Equity
Thus, based on the above formula, the ROE of HIVE Blockchain Technologies is:
39% = US $ 105 million Ã· US $ 267 million (based on the last twelve months to September 2021).
“Return” refers to a company’s profits over the past year. This means that for every C $ 1 in having shareholders, the company generated C $ 0.39 in profit.
What is the relationship between ROE and profit growth?
We have already established that ROE is an effective indicator of profit generation for a company’s future profits. Based on the portion of its profits that the company chooses to reinvest or “keep”, we are then able to assess a company’s future ability to generate profits. Assuming everything else is equal, companies that have both a higher return on equity and higher profit retention are usually the ones that have a higher growth rate than companies that do not have the same characteristics.
Growth in profits of HIVE Blockchain Technologies and 39% of ROE
First, we recognize that HIVE Blockchain Technologies has a significantly high ROE. Second, even compared to the industry average of 10%, the company’s ROE is quite impressive. Under these circumstances, HIVE Blockchain Technologies’ net profit growth of 26% over five years was to be expected.
In the next step, we compared the net income growth of HIVE Blockchain Technologies with the industry and luckily we found that the growth observed by the company is above the industry average growth by 15%. .
Profit growth is a huge factor in the valuation of stocks. What investors next need to determine is whether the expected earnings growth, or lack thereof, is already built into the share price. This then helps them determine whether the stock is set for a bright or dark future. A good indicator of expected earnings growth is the P / E ratio which determines the price the market is willing to pay for a stock based on its earnings outlook. So, you might want to check whether HIVE Blockchain Technologies is trading at a high P / E or a low P / E, relative to its industry.
Is HIVE Blockchain Technologies Using Profits Efficiently?
Since HIVE Blockchain Technologies does not pay any dividends to its shareholders, we infer that the company has reinvested all of its profits to grow its business.
Overall, we are quite satisfied with the performance of HIVE Blockchain Technologies. In particular, we like the fact that the company is reinvesting heavily in its business, and at a high rate of return. Unsurprisingly, this led to impressive profit growth. If the company continues to grow earnings like it has, it could have a positive impact on its stock price given the influence of earnings per share on long-term stock prices. Let’s not forget that trading risk is also one of the factors that affect the price of the stock. So this is also an important area that investors should pay attention to before making a decision on a business. You can see the 4 risks we have identified for HIVE Blockchain Technologies by visiting our risk dashboard for free on our platform here.
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This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts using only 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 into account your goals or your financial situation. Our aim is to bring you long-term, targeted analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price sensitive companies or qualitative documents. Simply Wall St has no position in any of the stocks mentioned.