Could The Market Be Wrong About Intel Corporation (NASDAQ:INTC) Given Its Attractive Financial Prospects?

Intel’s ROE in this article.” data-reactid=”28″>It is hard to get excited after looking at Intel’s (NASDAQ:INTC) recent performance, when its stock has declined 16% over the past three months. However, a closer look at its sound financials might cause you to think again. Given that fundamentals usually drive long-term market outcomes, the company is worth looking at. Specifically, we decided to study Intel’s ROE in this article.

Return on Equity or ROE is a test of how effectively a company is growing its value and managing investors’ money. In simpler terms, it measures the profitability of a company in relation to shareholder’s equity.

Check out our latest analysis for Intel ” data-reactid=”30″> Check out our latest analysis for Intel

How To Calculate Return On Equity?

Return on Equity = Net Profit (from continuing operations) ÷ Shareholders’ Equity

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

29% = US$24b ÷ US$82b (Based on the trailing twelve months to June 2020).

The ‘return’ is the profit over the last twelve months. That means that for every $1 worth of shareholders’ equity, the company generated $0.29 in profit.

What Has ROE Got To Do With Earnings Growth?

Thus far, we have learned that ROE measures how efficiently a company is generating its profits. Depending on how much of these profits the company reinvests or “retains”, and how effectively it does so, we are then able to assess a company’s earnings growth potential. Assuming everything else remains unchanged, the higher the ROE and profit retention, the higher the growth rate of a company compared to companies that don’t necessarily bear these characteristics.

A Side By Side comparison of Intel’s Earnings Growth And 29% ROE

To begin with, Intel has a pretty high ROE which is interesting. Additionally, the company’s ROE is higher compared to the industry average of 11% which is quite remarkable. This probably laid the groundwork for Intel’s moderate 18% net income growth seen over the past five years.

As a next step, we compared Intel’s net income growth with the industry and found that the company has a similar growth figure when compared with the industry average growth rate of 16% in the same period.

More

infographic on the company’s intrinsic value has everything you need to know.” data-reactid=”58″>Earnings growth is a huge 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). By doing so, they will have an idea if the stock is headed into clear blue waters or if swampy waters await. Is INTC fairly valued? This infographic on the company’s intrinsic value has everything you need to know.

Is Intel Efficiently Re-investing Its Profits?

Intel has a three-year median payout ratio of 29%, which implies that it retains the remaining 71% of its profits. This suggests that its dividend is well covered, and given the decent growth seen by the company, it looks like management is reinvesting its earnings efficiently.

Besides, Intel has been paying dividends for at least ten years or more. This shows that the company is committed to sharing profits with its shareholders. Based on the latest analysts’ estimates, we found that the company’s future payout ratio over the next three years is expected to hold steady at 27%. Still, forecasts suggest that Intel’s future ROE will drop to 22% even though the the company’s payout ratio is not expected to change by much.