Is the weakness in Agilent Technologies, Inc. (NYSE: A) stock a sign that the market could be wrong given its strong financial outlook?

It’s hard to get excited after looking at the recent performance of Agilent Technologies (NYSE: A), as its stock has fallen 12% in the past month. However, stock prices are usually determined by a company’s long-term financial performance, which in this case looks quite promising. Specifically, we have decided to study the ROE of Agilent Technologies in this article.

Return on equity or ROE is a test of how effectively a company increases its value and manages investor money. Simply put, it is used to assess a company’s profitability against its equity.

How is the ROE calculated?

The formula for ROE is:

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

Thus, based on the above formula, the ROE of Agilent Technologies is:

20% = US $ 990 million ÷ US $ 4.9 billion (based on the last twelve months to July 2021).

The “return” is the amount earned after tax over the past twelve months. Another way to look at this is that for every dollar in equity, the company was able to make $ 0.20 in profit.

Why is ROE important for profit growth?

So far we’ve learned that ROE is a measure of a company’s profitability. We now need to assess how much profit the business is reinvesting or “holding back” for future growth, which then gives us an idea of ​​the growth potential of the business. Generally speaking, all other things being equal, companies with high return on equity and high profit retention have a higher growth rate than companies that do not share these attributes.

A side-by-side comparison of Agilent Technologies’ profit growth and 20% ROE

For starters, Agilent Technologies appears to have a respectable ROE. Even compared to the industry average of 18%, the company’s ROE looks pretty decent. Therefore, this likely laid the groundwork for the decent 15% growth seen over the past five years by Agilent Technologies.

Then, comparing with the industry’s net income growth, we found that Agilent Technologies’ reported growth was lower than the industry’s growth by 30% over the same period, which we don’t like to see.

NYSE: Past Profit Growth October 15, 2021

Profit growth is an important metric to consider when valuing a stock. It is important for an investor to know whether the market has factored in the expected growth (or decline) in company earnings. This will help them determine whether the future of the stock looks bright or threatening. If you are wondering about the valuation of Agilent Technologies, check out this gauge of its price / earnings ratio, relative to its industry.

Is Agilent Technologies Efficiently Reinvesting Profits?

Agilent Technologies has a three-year median payout rate of 27%, which means it keeps the remaining 73% of its profits. This suggests that its dividend is well hedged and, given the decent growth of the company, it appears that management is reinvesting its earnings in an efficient manner.

In addition, Agilent Technologies has paid dividends for at least ten years or more. This shows that the company is committed to sharing the profits with its shareholders. After studying the latest consensus data from analysts, we found that the company’s future payout ratio is expected to drop to 19% over the next three years. The fact that the company’s ROE should reach 30% over the same period is explained by the drop in the payout rate.


Overall, we are quite satisfied with the performance of Agilent Technologies. In particular, it’s great to see the company investing heavily in their business and with a high rate of return, which has resulted in respectable profit growth. That said, the company’s earnings growth is expected to slow, as current analyst estimates predict. Are the expectations of these analysts based on general industry expectations or on company fundamentals? Click here to go to our business analyst forecasts page.

This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts using only 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 your financial situation. Our aim is to bring you long-term, targeted analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price sensitive companies or qualitative documents. Simply Wall St has no position in any of the stocks mentioned.

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