Is World Wrestling Entertainment, Inc.’s (NYSE:WWE) Recent Stock Performance A Reflection Of Its Financial Health?

As most readers should already know, World Wrestling Entertainment (NYSE:WWE) stock is up a substantial 14% over the past three months. Given that the market rewards strong financials over the long term, we wonder if that is the case in this case. Today we will be paying special attention to the ROE of World Wrestling Entertainment.

Return on Equity or ROE is an important factor to consider by a shareholder as it tells them how effectively their capital is being reinvested. In short, ROE shows the profit each dollar generates in relation to its shareholders’ investments.

Try this chances and risks within the US entertainment industry.

How is ROE calculated?

That Formula for ROE is:

Return on Equity = Net Income (from continuing operations) ÷ Equity

So, based on the formula above, the ROE for World Wrestling Entertainment is:

47% = $221M ÷ $471M (based on trailing 12 months ended September 2022).

The “return” is the profit of the last twelve months. Another way to think of it is that for every $1 in equity, the company was able to make $0.47 in profit.

What does ROE have to do with earnings growth?

We have already established that ROE serves as an efficient profitable measure of a company’s future profits. We now need to evaluate how much profit the company is reinvesting or “keeping” for future growth, which then gives us an idea of ​​the company’s growth potential. Assuming all else being equal, companies that demonstrate both higher return on equity and higher earnings retention tend to be those that exhibit a higher growth rate than companies that do not share the same characteristics.

World Wrestling Entertainment earnings growth and 47% ROE

First of all, World Wrestling Entertainment has a pretty high ROE, which is interesting. Second, the company’s ROE itself is pretty impressive compared to the industry average of 13%. So the substantial 32% net income growth that World Wrestling Entertainment has seen over the last five years is not too surprising.

Next, when comparing the industry net income growth, we found that the growth of World Wrestling Entertainment is quite high compared to the average industry growth of 20% over the same period, which is great to see.

past earnings growth
NYSE:WWE Past Earnings Growth November 22, 2022

Earnings growth is an important 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). That way they have an idea of ​​whether the stock is headed into clear blue waters or if swampy waters await them. If you’re wondering about World Wrestling Entertainment’s valuation, check out this benchmark of price-to-earnings versus its industry.

Is World Wrestling Entertainment Efficiently Reinvesting Its Profits?

World Wrestling Entertainment has a three-year average payout percentage of 26% (retaining 74% of its earnings), which is neither too low nor too high. This suggests the dividend is well-covered, and given the high growth we discussed above, it looks like World Wrestling Entertainment is efficiently reinvesting its earnings.

Additionally, World Wrestling Entertainment is committed to continuing to share its profits with shareholders, which we infer from its long history of paying a dividend for at least ten years. Our latest analyst data shows that the company’s future payout ratio is expected to drop to 12% over the next three years. Despite the lower expected payout ratio, the company’s ROE is not expected to change significantly.

Conclusion

Overall, we’re pretty happy with World Wrestling Entertainment’s performance. What we particularly like is that the company reinvests heavily in its business, and with a high rate of return. Unsurprisingly, this has resulted in impressive earnings growth. Against this backdrop, a study of the latest analyst forecasts reveals that the company is likely to experience a slowdown in its future earnings growth. To learn more about the latest analyst forecasts for the company, check out this visualization of analyst forecasts for the company.

The assessment is complex, but we help to simplify it.

find out if World Wrestling Entertainment may be over or under priced by reviewing our comprehensive analysis which includes the following Fair Value Estimates, Risks and Warnings, Dividends, Insider Trading and Financial Health.

Check out the free analysis

This Simply Wall St article is of a general nature. We provide comments based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended as financial advice. It is not a recommendation to buy or sell any stock and does not take into account your goals or financial situation. Our goal is to offer you long-term focused analysis based on fundamental data. 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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