Is Weakness In MGP Ingredients, Inc. (NASDAQ:MGPI) Stock A Sign That The Market Could be Wrong Given Its Strong Financial Prospects?




  • In Business
  • 2023-01-01 14:09:53Z
  • By Simply Wall St.
 

With its stock down 14% over the past month, it is easy to disregard MGP Ingredients (NASDAQ:MGPI). But if you pay close attention, you might gather that its strong financials could mean that the stock could potentially see an increase in value in the long-term, given how markets usually reward companies with good financial health. Specifically, we decided to study MGP Ingredients' ROE in this article.

Return on equity or ROE is a key measure used to assess how efficiently a company's management is utilizing the company's capital. Simply put, it is used to assess the profitability of a company in relation to its equity capital.

Check out our latest analysis for MGP Ingredients

How Do You Calculate Return On Equity?

ROE can be calculated by using the formula:

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

So, based on the above formula, the ROE for MGP Ingredients is:

16% = US$118m ÷ US$724m (Based on the trailing twelve months to September 2022).

The 'return' is the yearly profit. One way to conceptualize this is that for each $1 of shareholders' capital it has, the company made $0.16 in profit.

What Has ROE Got To Do With Earnings Growth?

We have already established that ROE serves as an efficient profit-generating gauge for a company's future earnings. 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. Assuming all 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 when compared to companies that don't have the same features.

A Side By Side comparison of MGP Ingredients' Earnings Growth And 16% ROE

To start with, MGP Ingredients' ROE looks acceptable. Further, the company's ROE is similar to the industry average of 16%. This certainly adds some context to MGP Ingredients' exceptional 26% net income growth seen over the past five years. However, there could also be other drivers behind this growth. For example, it is possible that the company's management has made some good strategic decisions, or that the company has a low payout ratio.

We then compared MGP Ingredients' net income growth with the industry and we're pleased to see that the company's growth figure is higher when compared with the industry which has a growth rate of 11% in the same period.

The basis for attaching value to a company is, to a great extent, tied to its earnings growth. The investor should try to establish if the expected growth or decline in earnings, whichever the case may be, is priced in. By doing so, they will have an idea if the stock is headed into clear blue waters or if swampy waters await. Has the market priced in the future outlook for MGPI? You can find out in our latest intrinsic value infographic research report.

Is MGP Ingredients Making Efficient Use Of Its Profits?

MGP Ingredients' ' three-year median payout ratio is on the lower side at 17% implying that it is retaining a higher percentage (83%) of its profits. So it looks like MGP Ingredients is reinvesting profits heavily to grow its business, which shows in its earnings growth.

Besides, MGP Ingredients has been paying dividends for at least ten years or more. This shows that the company is committed to sharing profits with its shareholders. Our latest analyst data shows that the future payout ratio of the company is expected to drop to 7.7% over the next three years.

Conclusion

Overall, we are quite pleased with MGP Ingredients' performance. 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. With that said, the latest industry analyst forecasts reveal that the company's earnings growth is expected to slow down. 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.

Join A Paid User Research Session
You'll receive a US$30 Amazon Gift card for 1 hour of your time while helping us build better investing tools for the individual investors like yourself. Sign up here

COMMENTS

More Related News

Are Robust Financials Driving The Recent Rally In Cryosite Limited
Are Robust Financials Driving The Recent Rally In Cryosite Limited's (ASX:CTE) Stock?

Cryosite (ASX:CTE) has had a great run on the share market with its stock up by a significant 29% over the last three...

Do Its Financials Have Any Role To Play In Driving DoubleVerify Holdings, Inc.
Do Its Financials Have Any Role To Play In Driving DoubleVerify Holdings, Inc.'s (NYSE:DV) Stock Up Recently?

Most readers would already be aware that DoubleVerify Holdings' (NYSE:DV) stock increased significantly by 26% over the...

Do Fundamentals Have Any Role To Play In Driving nVent Electric plc
Do Fundamentals Have Any Role To Play In Driving nVent Electric plc's (NYSE:NVT) Stock Up Recently?

Most readers would already know that nVent Electric's (NYSE:NVT) stock increased by 4.5% over the past three months. As...

Is Universal Technical Institute, Inc.
Is Universal Technical Institute, Inc.'s (NYSE:UTI) Stock's Recent Performance Being Led By Its Attractive Financial Prospects?

Universal Technical Institute (NYSE:UTI) has had a great run on the share market with its stock up by a significant 14...

Are Strong Financial Prospects The Force That Is Driving The Momentum In Maravai LifeSciences Holdings, Inc.
Are Strong Financial Prospects The Force That Is Driving The Momentum In Maravai LifeSciences Holdings, Inc.'s NASDAQ:MRVI) Stock?

Maravai LifeSciences Holdings (NASDAQ:MRVI) has had a great run on the share market with its stock up by a significant...

Leave a Comment

Your email address will not be published. Required fields are marked with *

Cancel reply

Comments

  • 안전토토사이트
    (2023-01-02 10:04:10Z)

    The internet can make it simplier and easier than at any time to acquire foods distribution providers.  Simply because they are on-line, they are easy for you to learn. You can shop for what you desire suitable from your unique personal computer. It is less complicated than actually to uncover food suppliers for Japanese cooking, this includes individuals that specialize in meals these kinds of as kombu. This kelp is harvested in Japan and is important for a lot of Japanese dishes. If you are arranging on cooking Japanese foods, you will want to be specified that you use the freshest ingredients.

    REPLY
  • Gulberg Greens Plots for Sale
    (2023-01-02 10:56:34Z)

    Property for sale Gulberg Greens Islamabad is including many blocks. Block A, Block B, C Block, D Block, E Block, Gulberg Residencia A Block, Gulberg Residencia B Block, and Leader Block. Gulberg Greens Islamabad is a great private undertaking that includes the extravagance offices and global standard conveniences so the occupants need to confront no issue while living in Gulberg Greens Islamabad

    REPLY
  • free online poker
    (2023-01-19 03:06:42Z)

    What's up, I would like to subscribe for this web site to take hottest updates, so where
    can i do it please help out.

    REPLY
  • Juguetes didácticos
    (2023-01-30 14:24:50Z)

    Very useful post. This is my first time i visit here. I found so many interesting stuff in your blog especially its discussion. Really its great article. Keep it up.

    REPLY
  • TubeMate
    (2023-02-02 08:48:48Z)

    It is imperative that we read blog post very carefully. I am already done it and find that this post is really amazing.

    REPLY
  • web para publicar historias
    (2023-02-06 18:19:50Z)

    Wow what a Great Information about World Day its very nice informative post. thanks for the post.

    REPLY

Top News: Business