Pfizer Limited’s (NSE:PFIZER) Stock Been Rising: Are Strong Financials Guiding The Market?

Inventories of Pfizer (NSE: PFIZER) have increased by 2.5% in the past week. Given its impressive performance, we decided to study the company’s main financial indicators as a company’s long-term fundamentals usually determine market results. In particular, we will pay attention to Pfizer’s ROE today.

Return on equity or ROE is a key measure used to evaluate the efficiency with which a company’s management uses the company’s capital. In short, ROE shows the profit each dollar generates relative to the investments of its shareholders.

Check out our latest analysis for Pfizer

How is ROE calculated?

ROE can be calculated using the formula:

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

So based on the formula above, the ROE for Pfizer is:

16% = ₹ 4.5b ÷ ₹ 29b (based on the final twelve months to June 2022).

The “yield” is the income the company has earned in the last year. One way to conceptualize this is that for every ₹ 1 of shareholder capital it has, the company has made a profit of ₹ 0.16.

What is the relationship between ROE and earnings growth?

We have already established that ROE serves as an efficient profit-generating indicator for a company’s future profits. Now we need to assess how much profit the company reinvests or “holds back” for future growth which gives us an idea of ​​the company’s growth potential. Assuming everything else is the same, companies that have both a higher return on equity and higher earnings retention are usually those that have a higher growth rate than companies that don’t have the same characteristics.

Pfizer earnings growth and ROE of 16%.

For starters, Pfizer appears to have a respectable ROE. Compared to the industry average ROE of 12%, the company’s ROE looks pretty impressive. This likely laid the foundation for Pfizer’s moderate 11% net income growth seen over the past five years.

As a next step, we compared Pfizer’s net profit growth to that of the industry and were disappointed to see that the company’s growth is below the industry average growth of 21% over the same period.

past-earning-growth
NSEI: PFIZER Past Earnings Growth 4 September 2022

Earnings growth is an important metric to consider when evaluating a stock. It is important for an investor to know if the market has priced the growth (or decline) of the company’s expected earnings. This will help them determine if the future of the title looks promising or threatening. Is Pfizer fairly valued compared to other companies? These 3 evaluation measures could help you decide.

Is Pfizer Using Its Retained Earnings Effectively?

Pfizer has an average three-year payout of 26%, which means it retains the remaining 74% of its profits. This suggests that its dividend is well hedged, and given the decent growth seen by the company, it appears management is reinvesting its earnings efficiently.

Additionally, Pfizer has been paying dividends for a period of at least ten years, which means the company is quite serious about sharing its profits with shareholders.

Conclusion

Overall, we believe Pfizer’s performance has been pretty good. In particular, we like that the company is reinvesting heavily in its businesses and with a high rate of return. Consequently, the decent growth of his earnings is not surprising. If the company continues to grow its earnings as it did, that could have a positive impact on its share price, given how earnings per share affect share prices over the long term. Let’s not forget that business risk is also one of the factors that influences 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. Our risk dashboard will have risk 1 that we have identified for Pfizer.

This Simply Wall St article 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 shares and does not take into account your goals or financial situation. We aim to provide you with long-term focused analytics driven by fundamental data. Please note that our analysis may not take into account the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any of the stocks mentioned.

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