With its stock down 24% over the past three months, it is easy to disregard WiseTech Global (ASX:WTC). However, stock prices are usually driven by a company's financial performance over the long term, which in this case looks quite promising. Particularly, we will be paying attention to WiseTech Global's ROE today.
Return on Equity or ROE is a test of how effectively a company is growing its value and managing investors' money. In short, ROE shows the profit each dollar generates with respect to its shareholder investments.
How Is ROE Calculated?
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 WiseTech Global is:
12% = US$201m ÷ US$1.7b (Based on the trailing twelve months to June 2025).
The 'return' is the amount earned after tax over the last twelve months. So, this means that for every A$1 of its shareholder's investments, the company generates a profit of A$0.12.
Check out our latest analysis for WiseTech Global
What Is The Relationship Between ROE And 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. 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.
WiseTech Global's Earnings Growth And 12% ROE
At first glance, WiseTech Global seems to have a decent ROE. Further, the company's ROE is similar to the industry average of 12%. This certainly adds some context to WiseTech Global's moderate 15% net income growth seen over the past five years.
As a next step, we compared WiseTech Global's net income growth with the industry and found that the company has a similar growth figure when compared with the industry average growth rate of 15% in the same period.
Earnings growth is an important metric to consider when valuing a stock. 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. Is WiseTech Global fairly valued compared to other companies? These 3 valuation measures might help you decide.
Is WiseTech Global Using Its Retained Earnings Effectively?
WiseTech Global has a low three-year median payout ratio of 21%, meaning that the company retains the remaining 79% of its profits. This suggests that the management is reinvesting most of the profits to grow the business.
Besides, WiseTech Global has been paying dividends over a period of nine years. This shows that the company is committed to sharing profits with its shareholders. Based on the latest analysts' estimates, we found that the company's future payout ratio over the next three years is expected to hold steady at 22%. Still, forecasts suggest that WiseTech Global's future ROE will rise to 19% even though the the company's payout ratio is not expected to change by much.
Conclusion
In total, we are pretty happy with WiseTech Global's performance. Specifically, we like that the company is reinvesting a huge chunk of its profits at a high rate of return. This of course has caused the company to see substantial growth in its earnings. That being so, the latest analyst forecasts show that the company will continue to see an expansion in its earnings. Are these analysts expectations based on the broad expectations for the industry, or on the company's fundamentals? Click here to be taken to our analyst's forecasts page for the company.
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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.
