Are Strong Financial Prospects The Force That Is Driving The Momentum In Foraco International SA’s TSE:FAR) Stock?
Foraco International (TSE:FAR) has had a great run on the share market with its stock up by a significant 7.6% over the last month. Given that the market rewards strong financials in the long-term, we wonder if that is the case in this instance. Particularly, we will be paying attention to Foraco International’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 simpler terms, it measures the profitability of a company in relation to shareholder’s equity.
The formula for ROE is:
Return on Equity = Net Profit (from continuing operations) ÷ Shareholders’ Equity
So, based on the above formula, the ROE for Foraco International is:
21% = US$19m ÷ US$89m (Based on the trailing twelve months to March 2025).
The ‘return’ is the profit over the last twelve months. So, this means that for every CA$1 of its shareholder’s investments, the company generates a profit of CA$0.21.
See our latest analysis for Foraco International
Thus far, we have learned that ROE measures how efficiently a company is generating its profits. Depending on how much of these profits the company reinvests or “retains”, and how effectively it does so, we are then able to assess a company’s earnings growth potential. 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.
To begin with, Foraco International seems to have a respectable ROE. Further, the company’s ROE compares quite favorably to the industry average of 10%. Probably as a result of this, Foraco International was able to see an impressive net income growth of 22% over the last five years. We believe that there might also be other aspects that are positively influencing the company’s earnings growth. For example, it is possible that the company’s management has made some good strategic decisions, or that the company has a low payout ratio.
Next, on comparing with the industry net income growth, we found that Foraco International’s growth is quite high when compared to the industry average growth of 18% in the same period, which is great to see.
Story Continues
TSX:FAR Past Earnings Growth July 4th 2025
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). Doing so will help them establish if the stock’s future looks promising or ominous. Is FAR fairly valued? This infographic on the company’s intrinsic value has everything you need to know.
While the company did pay out a portion of its dividend in the past, it currently doesn’t pay a regular dividend. This is likely what’s driving the high earnings growth number discussed above.
On the whole, we feel that Foraco International’s performance has been quite good. Particularly, we like that the company is reinvesting heavily into its business, and at a high rate of return. Unsurprisingly, this has led to an impressive earnings growth. If the company continues to grow its earnings the way it has, that could have a positive impact on its share price given how earnings per share influence long-term share prices. Let’s not forget, business risk is also one of the factors that affects the price of the stock. So this is also an important area that investors need to pay attention to before making a decision on any business. To know the 1 risk we have identified for Foraco International visit our risks dashboard for free.
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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.
