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Most readers will already be aware that Axcelis Technologies (NASDAQ:ACLS) shares have risen 28% over the past three months. Given the company’s impressive performance, we decided to take a closer look at its financial indicators, as the financial health of a company usually determines market results in the long run. In this article, we focused on Axcelis Technologies’ return on equity.

ROE or return on equity is a useful tool to assess how effectively a company can generate returns on the investments it receives from its shareholders. In simpler terms, it measures the profitability of a company relative to shareholders’ equity.

Check out our latest analysis for Axcelis Technologies

How do you calculate return on equity?

The Formula for ROE Is:

Return on equity = Net profit (from continuing operations) ÷ Equity

Based on the above formula, the ROE for Axcelis Technologies is:

28% = $250 million ÷ $902 million (based on the trailing twelve months ending March 2024).

The “return” is the annual profit. You can imagine it like this: for every dollar of shareholder capital, the company made $0.28 in profit.

What does return on equity (ROE) have to do with earnings growth?

So far we have learned that return on equity is a measure of a company’s profitability. Now we need to evaluate how much profit the company reinvests or “retains” for future growth, which then gives us an idea of ​​the company’s growth potential. Generally speaking, all things being equal, companies with high return on equity and profit retention will have a higher growth rate than companies that do not have these characteristics.

Axcelis Technologies’ earnings growth and return on equity of 28%

First, we recognize that Axcelis Technologies has a very high return on equity. Second, the company’s return on equity itself is quite impressive compared to the industry average of 15%. Therefore, Axcelis Technologies’ substantial net income growth of 47% over the past five years is not too surprising.

Next, we compared Axcelis Technologies’ net income growth with that of the industry and are pleased to note that the company’s growth rate is higher than that of the industry, which experienced a growth rate of 31% over the same 5-year period.

NasdaqGS:ACLS Past Earnings Growth June 29, 2024

Earnings growth is an important factor in stock valuation. It is important for an investor to know whether the market has priced in the company’s expected earnings growth (or decline). This will help them determine whether the stock’s future looks promising or bleak. A good indicator of expected earnings growth is the P/E ratio, which determines the price the market is willing to pay for a stock based on its earnings prospects. So, you should check whether Axcelis Technologies is trading at a high or low P/E relative to its industry.

Does Axcelis Technologies use its profits efficiently?

Since Axcelis Technologies does not pay regular dividends to its shareholders, we assume that the company has reinvested all its profits to grow its business.

Diploma

Overall, we are very pleased with Axcelis Technologies’ performance. It is particularly pleasing that the company is investing heavily in its business and this has led to considerable earnings growth alongside a high rate of return. However, the company’s earnings growth is expected to slow down, as forecast in the latest analyst estimates. Are these analyst expectations based on general expectations for the industry or on the company’s fundamentals? Click here to go to our analyst forecasts page for the company.

Valuation is complex, but we help simplify it.

Find out if Axcelis Technologies may be overvalued or undervalued by reading our comprehensive analysis which includes: Fair value estimates, risks and warnings, dividends, insider transactions and financial health.

View free analysis

Do you have feedback on this article? Are you concerned about the content? Get in touch directly from us. Alternatively, send an email to editorial-team (at) simplywallst.com.

This Simply Wall St article is of a general nature. We comment solely on historical data and analyst forecasts, using an unbiased methodology. Our articles do not constitute financial advice. It is not a recommendation to buy or sell any stock and does not take into account your objectives or financial situation. Our goal is to provide you with long-term analysis based on fundamental data. Note that our analysis may not take into account the latest price-sensitive company announcements or qualitative materials. Simply Wall St does not hold any of the stocks mentioned.

Valuation is complex, but we help simplify it.

Find out if Axcelis Technologies may be overvalued or undervalued by reading our comprehensive analysis which includes: Fair value estimates, risks and warnings, dividends, insider transactions and financial health.

View free analysis

Do you have feedback on this article? Are you interested in the content? Contact us directly. Alternatively, send an email to [email protected]

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