Is IDP Education Limited (ASX:IEL) Set to Surprise Investors? Exploring Its Promising Financial Outlook

IDP Education (ASX:IEL) may have seen its stock fall 5.5% in the past three months, but there are reasons to take a closer look at the numbers. Strong financials often lead to a brighter future, so let’s focus on one key indicator: Return on Equity (ROE).

ROE is important for shareholders. It shows how well a company uses their money to generate profits. Simply put, ROE tells you how much profit a company makes for every dollar invested by its shareholders.

To calculate ROE, you can use this formula:

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

For IDP Education, the ROE stands at:

26% = AU$134m ÷ AU$523m (based on the last 12 months until June 2024).

This means that for every A$1 a shareholder invests, the company makes a profit of A$0.26.

Having a high ROE is a good sign. It indicates the company knows how to grow its profits. The higher the ROE and the percentage of profits reinvested, the better the potential for future growth. In comparison, the average ROE in IDP’s industry is only 6.8%. This high ROE helps explain why IDP Education has experienced a 23% increase in net income over the last five years.

When we compare IDP Education’s growth in net income with the industry average of 12%, it’s clear they are performing better than many peers.

A company’s value often ties back to its earnings growth. Investors should think about whether the market has factored in expected growth or decline when looking at current stock prices. One way to assess this is by using the Price-to-Earnings (P/E) ratio, which reflects what investors are willing to pay for a share based on earnings prospects. It may be worth checking if IDP Education’s P/E ratio indicates a high or low valuation compared to its industry.

IDP Education has a median payout ratio of 72% over the past three years. This means it returns most of its profits to shareholders while still maintaining growth. The company has also consistently paid dividends for eight years, showing a commitment to sharing profits.

Over the next three years, the payout ratio is expected to remain around 71%. Analysts predict the company’s future ROE will reach 29%, close to its current figure.

Overall, IDP Education’s high ROE and significant earnings growth are impressive. Even with a high payout, it has still managed to increase its earnings. However, analysts anticipate a slowdown in future earnings growth. To learn more, it’s a good idea to check reports on the company’s future earnings forecasts.