Old Dominion Freight Line (NASDAQ:ODFL) has had a rough three months with its share price down 16%. 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 Old Dominion Freight Line’s ROE today.
Return on equity or ROE is a key measure used to assess how efficiently a company’s management is utilizing the company’s capital. In other words, it is a profitability ratio which measures the rate of return on the capital provided by the company’s shareholders.
The formula for ROE is:
Return on Equity = Net Profit (from continuing operations) ÷ Shareholders’ Equity
So, based on the above formula, the ROE for Old Dominion Freight Line is:
28% = US$1.2b ÷ US$4.2b (Based on the trailing twelve months to December 2024).
The ‘return’ is the income the business earned over the last year. That means that for every $1 worth of shareholders’ equity, the company generated $0.28 in profit.
View our latest analysis for Old Dominion Freight Line
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. Generally speaking, other things being equal, firms with a high return on equity and profit retention, have a higher growth rate than firms that don’t share these attributes.
To begin with, Old Dominion Freight Line has a pretty high ROE which is interesting. Secondly, even when compared to the industry average of 13% the company’s ROE is quite impressive. This likely paved the way for the modest 15% net income growth seen by Old Dominion Freight Line over the past five years.
As a next step, we compared Old Dominion Freight Line’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 11%.
Earnings growth is an important metric to consider when valuing a stock. It’s important for an investor to know whether the market has priced in the company’s expected earnings growth (or decline). This then helps them determine if the stock is placed for a bright or bleak future. What is ODFL worth today? The intrinsic value infographic in our free research report helps visualize whether ODFL is currently mispriced by the market.
