Is Killam Apartment Real Estate Investment Trust's (TSE:KMP.UN) Recent Stock Performance Influenced By Its Financials In Any Way?
Most readers would already know that Killam Apartment Real Estate Investment Trust's (TSE:KMP.UN) stock increased by 6.3% over the past three months. Given that stock prices are usually aligned with a company's financial performance in the long-term, we decided to investigate if the company's decent financials had a hand to play in the recent price move. Specifically, we decided to study Killam Apartment Real Estate Investment Trust's ROE in this article.
Return on Equity or ROE is a test of how effectively a company is growing its value and managing investors’ money. In simpler terms, it measures the profitability of a company in relation to shareholder's equity.
Check out our latest analysis for Killam Apartment Real Estate Investment Trust
How Is ROE Calculated?
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 Killam Apartment Real Estate Investment Trust is:
7.6% = CA$135m ÷ CA$1.8b (Based on the trailing twelve months to March 2021).
The 'return' is the amount earned after tax over the last twelve months. Another way to think of that is that for every CA$1 worth of equity, the company was able to earn CA$0.08 in profit.
Why Is ROE Important For Earnings Growth?
So far, we've learned that ROE is a measure of a company's profitability. We now need to evaluate how much profit the company reinvests or "retains" for future growth which then gives us an idea about the growth potential of the company. 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.
A Side By Side comparison of Killam Apartment Real Estate Investment Trust's Earnings Growth And 7.6% ROE
When you first look at it, Killam Apartment Real Estate Investment Trust's ROE doesn't look that attractive. However, its ROE is similar to the industry average of 7.7%, so we won't completely dismiss the company. Particularly, the exceptional 25% net income growth seen by Killam Apartment Real Estate Investment Trust over the past five years is pretty remarkable. Considering the moderately low ROE, it is quite possible that there might be some other aspects that are positively influencing the company's earnings growth. Such as - high earnings retention or an efficient management in place.
Next, on comparing with the industry net income growth, we found that Killam Apartment Real Estate Investment Trust's growth is quite high when compared to the industry average growth of 15% in the same period, which is great to see.
Earnings growth is a huge factor in stock valuation. What investors need to determine next is if the expected earnings growth, or the lack of it, is already built into the share price. Doing so will help them establish if the stock's future looks promising or ominous. What is KMP.UN worth today? The intrinsic value infographic in our free research report helps visualize whether KMP.UN is currently mispriced by the market.
Is Killam Apartment Real Estate Investment Trust Making Efficient Use Of Its Profits?
Killam Apartment Real Estate Investment Trust seems to be paying out most of its income as dividends judging by its three-year median payout ratio of 51%, meaning the company retains only 49% of its income. However, this is typical for REITs as they are often required by law to distribute most of their earnings. Regardless, this hasn't hampered its ability to grow as we saw earlier.
Additionally, Killam Apartment Real Estate Investment Trust 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
Overall, we feel that Killam Apartment Real Estate Investment Trust certainly does have some positive factors to consider. Namely, its high earnings growth. We do however feel that the earnings growth number could have been even higher, had the company been reinvesting more of its earnings and paid out less dividends. So far, we've only made a quick discussion around the company's earnings growth. So it may be worth checking this free detailed graph of Killam Apartment Real Estate Investment Trust's past earnings, as well as revenue and cash flows to get a deeper insight into the company's performance.
This article by Simply Wall St is general in nature. 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.
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