Falling Stocks and Solid Fundamentals: Is the Market Wrong About ANSYS (NASDAQ:ANSS)?

ANSYS (NASDAQ:ANSS) has been in almost three months with its share price down 18%. But if you pay close attention, you might realize that its strong financials could mean the stock could see an increase in value in the long run, given how the markets usually reward companies with good financial health. In this article, we’ve decided to focus on ANSYS’ own equity rules.

Return on equity or return on equity is a key measure used to assess how efficiently a company’s management is using the company’s capital. In simpler terms, it measures the profitability of a company in relation to shareholders’ equity.

check the Opportunities and risks in the American software industry.

How is return on equity calculated?

The ROE . formula he is:

Return on Equity = Net Profit (from Continuing Operations) ÷ Shareholders’ Equity

So, based on the above formula, the return on equity for ANSYS is:

10% = $458 million ÷ $4.5 billion (based on the subsequent twelve months to June 2022).

“Return” refers to the company’s earnings over the past year. This means that for every $1 of shareholder equity, the company generated a profit of $0.10.

What should the ROE do as earnings grow?

So far, we have learned that return on equity is a measure of a company’s profitability. Depending on the amount of profits the company chooses to reinvest or “keep,” we can then assess the company’s future ability to generate profits. Assuming everything else remains unchanged, the higher the return on equity and retained earnings, the higher the growth rate of the company compared to companies that do not necessarily have these characteristics.

Comparison of ANSYS Earnings Growth and 10% ROE

To start off, ANSYS’s ROE seems acceptable. Furthermore, the company’s return on equity is similar to the industry average of 13%. This certainly adds some context to ANSYS’ moderate 10% net income growth seen over the past five years.

Then we compared ANSYS’s net income growth to the industry and found that the company’s growth figure is below the average industry growth rate of 26% in the same period, which is a bit worrying.

Earnings growth is a big factor in stock valuation. What investors need to determine next is whether, or not, the expected earnings growth is actually built into the stock price. This then helps them decide whether to position the stock for a bright or bleak future. Is the market priced in the ANSS outlook? You can find out in our latest Intrinsic Value research report.

Is ANSYS Using Its Retained Earnings Effectively?

ANSYS pays no dividend, which means that all of its profits are reinvested in the business, which explains a reasonable amount of earnings growth the company has experienced.

Summary

All in all, we are very pleased with ANSYS’ performance. In particular, it is great to see that the company is investing heavily in its business, combined with a high rate of return, which has resulted in a respectable growth in its earnings. However, the latest industry analyst forecasts reveal that the company’s earnings are expected to accelerate. To learn more about the company’s future earnings growth forecast, take a look at this Free A report on analysts’ forecasts for the company to find out more.

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This article by Simply Wall St is general in nature. We provide comments based only on historical data and analyst expectations using an unbiased methodology and our articles are not intended as financial advice. It does not constitute a recommendation to buy or sell any stock, nor does it take into account your objectives or financial situation. We aim to provide you with focused, long-term analysis driven by essential data. Note that our analysis may not include the company’s most recent price-sensitive ads or quality materials. Wall Street simply has no position in any of the stocks mentioned.