Economy Stalls
The UK economy's stellar first quarter feels more and more like a distant memory.
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Yahoo
an hour ago
- Yahoo
Taking A Look At Alarm.com Holdings, Inc.'s (NASDAQ:ALRM) ROE
One of the best investments we can make is in our own knowledge and skill set. With that in mind, this article will work through how we can use Return On Equity (ROE) to better understand a business. To keep the lesson grounded in practicality, we'll use ROE to better understand Holdings, Inc. (NASDAQ:ALRM). Return on equity or ROE is an important factor to be considered by a shareholder because it tells them how effectively their capital is being reinvested. Put another way, it reveals the company's success at turning shareholder investments into profits. This technology could replace computers: discover the 20 stocks are working to make quantum computing a reality. How Is ROE Calculated? The formula for ROE is: Return on Equity = Net Profit (from continuing operations) ÷ Shareholders' Equity So, based on the above formula, the ROE for Holdings is: 16% = US$127m ÷ US$812m (Based on the trailing twelve months to March 2025). The 'return' is the yearly profit. So, this means that for every $1 of its shareholder's investments, the company generates a profit of $0.16. Check out our latest analysis for Holdings Does Holdings Have A Good ROE? One simple way to determine if a company has a good return on equity is to compare it to the average for its industry. However, this method is only useful as a rough check, because companies do differ quite a bit within the same industry classification. If you look at the image below, you can see Holdings has a similar ROE to the average in the Software industry classification (13%). That isn't amazing, but it is respectable. While at least the ROE is not lower than the industry, its still worth checking what role the company's debt plays as high debt levels relative to equity may also make the ROE appear high. If true, then it is more an indication of risk than the potential. How Does Debt Impact ROE? Companies usually need to invest money to grow their profits. The cash for investment can come from prior year profits (retained earnings), issuing new shares, or borrowing. In the first two cases, the ROE will capture this use of capital to grow. In the latter case, the debt required for growth will boost returns, but will not impact the shareholders' equity. That will make the ROE look better than if no debt was used. Holdings' Debt And Its 16% ROE Holdings clearly uses a high amount of debt to boost returns, as it has a debt to equity ratio of 1.21. While its ROE is pretty respectable, the amount of debt the company is carrying currently is not ideal. Debt increases risk and reduces options for the company in the future, so you generally want to see some good returns from using it. Summary Return on equity is one way we can compare its business quality of different companies. Companies that can achieve high returns on equity without too much debt are generally of good quality. If two companies have around the same level of debt to equity, and one has a higher ROE, I'd generally prefer the one with higher ROE. Having said that, while ROE is a useful indicator of business quality, you'll have to look at a whole range of factors to determine the right price to buy a stock. It is important to consider other factors, such as future profit growth -- and how much investment is required going forward. So you might want to check this FREE visualization of analyst forecasts for the company. But note: Holdings may not be the best stock to buy. So take a peek at this free list of interesting companies with high ROE and low debt. Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) 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.
Yahoo
an hour ago
- Yahoo
Netflix earnings on deck as investors weigh valuation, content strength
Netflix (NFLX) is set to report second quarter earnings after the bell on Thursday. Shares have soared about 40% since the start of the year, with the stock's valuation a top debate on Wall Street as the streamer doubles down on live events and sports content. Here's what Wall Street expects for the second quarter, according to Bloomberg consensus estimates. Revenue: $11.06 billion versus $9.56 billion last year; Netflix's guidance: $11.04 billion Earnings per share: $7.09 versus $4.88 last year; Netflix's guidance: $7.03 Investors will be focused on metrics other than subscriber numbers, which the company stopped reporting as it focuses on driving greater engagement and top-line growth. At the end of 2024, the company had 301.6 million global subscribers. Netflix said in its fourth quarter shareholder letter it will disclose subscriber data in the future "as we cross key milestones." Read more about Netflix's stock moves and today's market action. Wall Street analysts remain divided over Netflix's valuation, with shares currently trading at roughly 40 times forward earnings, a notable premium compared to the broader market and even some of the company's tech peers. In a recent note to clients, JPMorgan urged caution, warning that much of the optimism around Netflix may already be priced in. As a result, the firm reiterated its Neutral rating on the stock and maintained a price target of $1,220 per share. At the same time, others say the valuation is justified. "The valuation, I understand, is a little bit rich," Brian Mulberry, client portfolio manager at Zacks Investment Management, told Yahoo Finance, noting that Netflix trades at roughly twice the valuation of the S&P 500 (^GSPC). "But this is one of the few places where you're actually finding really strong earnings growth projected over the next two to three years." Mulberry pointed to estimates that show Netflix's earnings per share are expected to grow at an annual rate of about 21% over the next three years, triple the pace of the broader market. He highlighted advertising as a critical growth driver, calling it the most important metric to watch after overall earnings and revenue. Netflix's ad-tier revenue is estimated to double to about $3 billion this year, up from $1.4 billion in 2024. In May, Netflix announced its ad-supported tier has reached 94 million global monthly active users, an increase from 70 million in November. The company also noted strong engagement among US ad-tier members, who are watching approximately 41 hours of content per month, on par with those on the ad-free plan. Netflix also boasts a strong second-half content slate, including new seasons of tentpole series like "Wednesday," "Stranger Things," and "Squid Game," which premiered its latest installment last month. Among major streaming platforms, Netflix continues to lead with the lowest subscriber churn, suggesting high user stickiness. Additionally, live events and sports programming, such as the Taylor vs. Serrano fight, NFL Christmas Day games, and weekly WWE Raw, could further boost engagement, attract ad dollars, and support subscriber growth. Speculation has also been building around whether the UFC could be the next major sports property to land on Netflix. According to Bloomberg data, the stock has a bullish tilt on Wall Street, with 42 Buys, 18 Holds, and just one Sell. The average price target among analysts sits around $1,263 per share, implying modest upside from current levels. Allie Canal is a Senior Reporter at Yahoo Finance. Follow her on X @allie_canal, LinkedIn, and email her at
Bloomberg
an hour ago
- Bloomberg
Trump Denies Plan to Fire Powell
Lael Brainard, former vice chair of the Federal Reserve, says that any break from fed independence would be 'extremely bad' for the United States and weighs in on how the pressure from the president could color the perception of the economic environment. (Source: Bloomberg)
