Edwards Lifesciences Corporation (NYSE:EW)’s Recent Stock Performance Looks Decent – Could Strong Fundamentals Be the Reason?

Edwards Lifesciences (NYSE:EW) stock is up 4.0% over the past month. Given that the market rewards strong financials over the long term, we wonder if that is the case in this case. Specifically, we decided to examine Edwards Lifesciences’ ROE in this article.

Return on equity or ROE is a test of how effectively a company increases its value and manages investors’ money. In simple terms, it assesses the profitability of a company in relation to its equity capital.

Check out our latest analysis for Edwards Lifesciences

Return on equity can be calculated using the formula:

Return on equity = net profit (from continuing operations) ÷ equity

So, based on the above formula, the ROE for Edwards Lifesciences is:

16% = $1.6 billion ÷ $9.6 billion (Based on trailing twelve months ending September 2024).

The “return” is the profit over the last twelve months. So this means that for every dollar that its shareholders invest, the company generates a profit of $0.16.

So far we have learned that ROE measures how efficiently a company generates its profits. Based on how much of its profits the company reinvests or “retains”, we can then evaluate a company’s future ability to generate profits. In general, companies with a high return on equity and profit retention, other things being equal, have a higher growth rate than companies that do not have these characteristics.

First of all, Edwards Lifesciences’ ROE looks acceptable. Additionally, the company’s ROE compares quite favorably to the industry average of 12%. This certainly adds some context to Edwards Lifesciences’ decent net income growth of 11% over the last five years.

Next, comparing Edwards Lifesciences’ net income growth with the industry, we found that the company’s reported growth is similar to the industry’s average growth rate of 12% in recent years.

The basis for a company’s valuation depends to a large extent on earnings growth. Next, investors need to determine whether or not expected earnings growth is already built into the stock price. This will give them an idea of ​​whether the stock is headed to clear, blue waters or whether swampy waters await them. Is EW fairly valued? This infographic on the intrinsic value of the company contains everything you need to know.

Edwards Lifesciences does not currently pay regular dividends, which essentially means that the company has reinvested all profits back into the business. This definitely contributes to the decent earnings growth we discussed above.

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