Are IGO Limited's (ASX:IGO) Fundamentals Good Enough to Warrant Buying Given The Stock's Recent Weakness?

Simply Wall St
·3 min read

IGO (ASX:IGO) has had a rough three months with its share price down 26%. However, the company's fundamentals look pretty decent, and long-term financials are usually aligned with future market price movements. Specifically, we decided to study IGO's ROE in this article.

ROE or return on equity is a useful tool to assess how effectively a company can generate returns on the investment it received from its shareholders. In other words, it is a profitability ratio which measures the rate of return on the capital provided by the company's shareholders.

View our latest analysis for IGO

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 IGO is:

5.8% = AU$188m ÷ AU$3.2b (Based on the trailing twelve months to December 2021).

The 'return' is the yearly profit. That means that for every A$1 worth of shareholders' equity, the company generated A$0.06 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. 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. Assuming everything else remains unchanged, the higher the ROE and profit retention, the higher the growth rate of a company compared to companies that don't necessarily bear these characteristics.

A Side By Side comparison of IGO's Earnings Growth And 5.8% ROE

At first glance, IGO's ROE doesn't look very promising. Next, when compared to the average industry ROE of 16%, the company's ROE leaves us feeling even less enthusiastic. Despite this, surprisingly, IGO saw an exceptional 33% net income growth over the past five years. So, there might be other aspects that are positively influencing the company's earnings growth. Such as - high earnings retention or an efficient management in place.

As a next step, we compared IGO's net income growth with the industry, and pleasingly, we found that the growth seen by the company is higher than the average industry growth of 26%.

past-earnings-growth
past-earnings-growth

Earnings growth is a huge factor in stock valuation. It’s important for an investor to know whether the market has priced in the company's expected earnings growth (or decline). 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 IGO? You can find out in our latest intrinsic value infographic research report.

Is IGO Efficiently Re-investing Its Profits?

The high three-year median payout ratio of 59% (implying that it keeps only 41% of profits) for IGO suggests that the company's growth wasn't really hampered despite it returning most of the earnings to its shareholders.

Moreover, IGO is determined to keep sharing its profits with shareholders which we infer from its long history of paying a dividend for at least ten years. Our latest analyst data shows that the future payout ratio of the company is expected to drop to 19% over the next three years. As a result, the expected drop in IGO's payout ratio explains the anticipated rise in the company's future ROE to 32%, over the same period.

Summary

On the whole, we do feel that IGO has some positive attributes. 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. That being so, the latest analyst forecasts show that the company will continue to see an expansion in its earnings. To know more about the latest analysts predictions for the company, check out this visualization of analyst forecasts for the company.

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.

  • Up next
  • Up next
  • Up next
  • Up next

Latest Stories

  • Rebel Moon Part 2 review: A slow-mo sci-fi slog

    Rebel Moon: Part 2 - The Scargiver is an empty feast, a relentless onslaught of explosions, sci-fi tropes and meaningless exposition that amounts to nothing.

  • Trump's hush money trial, as seen through courtroom sketches

    Since it’s not being televised — and news photographers are only permitted in for 45 seconds at the start of each day — the only other images from inside the courtroom are portraits being done by sketch artists.

  • Martha Stewart uses this fan-favorite Mario Badescu collagen mask to firm and tighten skin — and it's down to $14

    Reviewers love the mask, too: 'My skin is soft, even dewy ... it's really unbelievable!'

  • Aparicio and revamped Atletico Ottawa looking to top Canadian Premier League table

    On his third stop in the Canadian Premier League, Manny Aparicio is closer to home and, hopefully, another title. The 28-year-old midfielder, born in Buenos Aires and raised in Toronto, joined Atletico Ottawa in the off-season from Pacific FC — part of a strong Ottawa recruiting class. "We have a lot of positions where no one can really feel relax and take their starting spot for granted, which is good to see," said Aparicio. "It's gelling well together," he added. "I don't really see any egos o

  • Mexican presidential frontrunner would focus on renewable energy, water

    Mexican presidential candidate Claudia Sheinbaum on Friday said that if elected, her administration would focus on water management and renewable energy as part of a plan to boost the country's sustainability. Speaking at a banking event on the country's Pacific coast, Sheinbaum added that she would also focus on developing areas for nearshoring, investing in industrial parks and boosting the country's freight and passenger train networks. The candidate for the ruling MORENA party, Sheinbaum is strongly favored to win the June elections and her campaign has centered on broadly continuing the policies of current President Andres Manuel Lopez Obrador.

  • UPDATE 1-Accident stops sugar loading at Brazil's Recife port, says company

    An accident with a shiploader at the sugar terminal in the Recife port in Northeastern Brazil suspended loading operations at the site, according to a note from shipping company Williams Brazil late on Thursday. The company said the shiploader collapsed and a part of the machine fell inside the cargo hold of a vessel that was docked at the port to load raw sugar. The press service at the Recife port confirmed the accident, adding that nobody was hurt.

  • Salman Rushdie's 'Knife' reflects author's will to live

    Salman Rushdie’s "Knife" details the author's recovery after being stabbed and left blind in his right eye. The AP's Hillel Italie says the book shows that the 2022 attack “did not crush him. It didn't take his spirit away.” (April 19) (AP production by Gary Gerard Hamilton)

  • Mueller Water Products Stock Earns Relative Strength Rating Upgrade; Hits Key Benchmark

    A Relative Strength Rating upgrade for Mueller Water Products shows improving technical performance.

  • RCMP say Back Bay wharf fires were arson, seeking suspect

    RCMP have now labelled three separate fires that happened at the wharf in Back Bay, near St, George in southwestern New Brunswick, as arson. Members of the Eastern Charlotte Fire Department responded to a call at 3:30 a.m. Thursday about a vehicle on fire at the wharf, but when they arrived discovered that a commercial fishing boat and building were also on fire.The fire in the building, at 24 Back Bay Loop Rd., was extinguished before it was damaged, said Justin Johnston, fire chief for Eastern

  • Centre Wellington inches toward transit solution

    CENTRE WELLINGTON – Councillors hope a new grant application will bring the township one step closer to a "made-in-Centre Wellington transit solution." Centre Wellington council has directed staff to apply for a grant to fund a Transit Service Study reviewing existing mobility options, projecting future transit service demand, assessing service alternatives and developing a recommended strategy and implementation plan for transit service. Approved during a council meeting Monday afternoon, staff

  • Ford CEO Jim Farley teases a mystery Mustang

    Ford is celebrating 60 years of Mustang with a series of events, and Farley's post suggests that a new variant is in the works.

  • Seeking 'the right side of history,' Speaker Mike Johnson risks his job to deliver aid to Ukraine

    WASHINGTON (AP) — Staring down a decision so consequential it could alter the course of history -- but also end his own career -- House Speaker Mike Johnson prayed for guidance. A conservative Christian, the speaker wrestled over whether to lead the House in approving $95 billion in desperately needed war-time aid for Ukraine, Israel and other U.S. allies, which many in his own Republican majority opposed — some so strongly they would try to boot him from office. Or, he could do nothing, halting

  • AI Chip Leader Arm Stock Plunges 17% In Today's Stock Market, Is It A Buy Right Now?

    AI chip stock Arm Holdings surged more than 152% past a recent buy point. Following that advance, is Arm stock a buy in today's stock market?

  • UnitedHealth CEO to testify before US House panel on cyberattack at tech unit

    "We look forward to learning more on what happened in the lead up to, and in the weeks following, the attack," said Cathy Rodgers, energy and commerce committee chair, and Morgan Griffith, chair of the subcommittee on oversight and investigations. "This hearing will help inform the committee as we continue working toward solutions that protect the health and well-being of all Americans."

  • Bank of America stock rises on Wolfe Research upgrade

    Shares of Bank of America (BAC) have received an upgrade from analysts at Wolfe Research. The firm has lifted the stock's rating to Outperform from Peer Perform, citing increased clarity surrounding the bank's net interest income prospects and an attractive valuation compared to competitors. Yahoo Finance's Julie Hyman and Madison Mills break down the details. For more expert insight and the latest market action, click here to watch this full episode of Market Domination. This post was written by Angel Smith

  • Ryan Garcia misses weight for Devin Haney showdown as world title hopes vanish

    Fight remains on, but Garcia can no longer win Haney’s WBC light-welterweight title and will also pay rival $1.5m

  • RIDE WELL partners with Uber to improve service

    WELLINGTON COUNTY –Wellington County is turning to a partnership with Uber to help make its RIDE WELL program more efficient. Uber integration and interactive voice response (IVR) are two new enhancements soon to be implemented in the county's RIDE WELL program. While a staff report says IVR won't significantly change how the service operates, staff believe it will provide a quicker method of obtaining information for passengers and "will especially" serve those without access to the RIDE WELL a

  • Man sets himself on fire outside Trump trial court

    A man has set himself on fire outside the New York courtroom where Donald Trump’s hush money trial is taking place.

  • Finding an apartment may be easier for California pet owners under new legislation

    SACRAMENTO, Calif. (AP) — California pet owners struggling to find a rental that accepts their furry, four-legged family members could have an easier time leasing new housing under proposed state legislation that would ban blanket no-pets policies and prohibit landlords from charging additional fees for common companions like cats and dogs. Backers of the bill, which recently cleared a key committee, say the lack of pet-friendly units is pushing renters to forgo housing or relinquish beloved pet

  • Man who set himself on fire outside Trump trial identified as ‘researcher’ who posted conspiracy-laden manifesto moments earlier

    The NYPD identified the man as Maxwell Azzarello, 37, who is now in critical condition in Cornell burns unit. He has a long history of posting conspiracy theories and railing against the rich and powerful