Taylor Morrison Home Corporation (NYSE: TMHC) stock is on an uptrend: Will the markets be driven by strong financial figures?

Most readers will already be aware that Taylor Morrison Home (NYSE:TMHC) shares have risen 14% in the past week. Since the market usually pays for a company’s long-term fundamentals, we decided to examine the company’s key performance indicators to see if they could influence the market. In particular, we will be paying attention to Taylor Morrison Home’s return on equity today.

Return on equity or ROE is an important factor for a shareholder to consider as it tells them how effectively their capital is being reinvested. In other words, it is a profitability ratio that measures the return on the capital provided by the company’s shareholders.

Check out our latest analysis for Taylor Morrison Home

How do you calculate return on equity?

The Formula for return on equity Is:

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

Based on the above formula, the ROE for Taylor Morrison Home is:

14% = $770 million ÷ $5.4 billion (based on the trailing twelve months ending March 2024).

The “return” is the amount earned after taxes over the last twelve months. You can imagine this as the company making $0.14 in profit for every dollar of shareholder capital.

Why is return on equity (ROE) important for earnings growth?

So far, we’ve learned that return on equity (ROE) measures how efficiently a company generates its profits. 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. Assuming everything else remains unchanged, the higher the return on equity and retention of earnings, the higher a company’s growth rate will be compared to companies that don’t necessarily have these characteristics.

Taylor Morrison Home’s earnings growth and return on equity of 14%

First of all, Taylor Morrison Home appears to have a respectable return on equity. And when comparing it to the industry, we found that the industry average return on equity is similarly high at 15%. This certainly adds some context to Taylor Morrison Home’s exceptional net income growth of 34% over the past five years. We believe there could be other aspects as well that are positively impacting the company’s earnings growth. For example, it’s possible that the company’s management has made some good strategic decisions or that the company has a low payout ratio.

We then compared Taylor Morrison Home’s net profit growth with that of the industry and are pleased to see that the company’s growth rate is higher than that of the industry, which recorded a growth rate of 24% over the same 5-year period.

Earnings growth is an important factor in stock valuation. The investor should try to determine if the expected earnings growth or expected earnings decline, whichever may be the case, is reflected in the price. This will then help them determine if the stock is positioned for a good or bad future. Is Taylor Morrison Home fairly valued compared to other companies? These 3 valuation metrics could help you decide.

Does Taylor Morrison Home reinvest its profits efficiently?

Since Taylor Morrison Home 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 think Taylor Morrison Home’s performance has been quite good. We particularly like that the company is reinvesting heavily in its business and generating a high rate of return in the process. Unsurprisingly, this has resulted in impressive earnings growth. However, a study of the latest analyst forecasts shows that the company is likely to experience a slowdown in its earnings growth going forward. For more information on the latest analyst forecasts for the company, check out this visualization of analyst forecasts for the company.

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This Simply Wall St article is of a general nature. We comment solely on the basis of 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.

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