LeMaitre Vascular, Inc.'s (NASDAQ:LMAT) Fundamentals Look Pretty Strong: Could The Market Be Wrong About The Stock?
LeMaitre Vascular, Inc. (NASDAQ:LMAT) has seen a 12% decline in stock value over the past month, despite strong financials indicating potential long-term growth. The company's return on equity (ROE) stands at 13%, above the industry average of 11%, contributing to a moderate 17% growth over the past five years. With a payout ratio of 41% and a retention ratio of 59%, LeMaitre is efficiently reinvesting profits while maintaining a history of dividend payments. However, analysts forecast a slowdown in future earnings growth.
It is hard to get excited after looking at LeMaitre Vascular's (NASDAQ:LMAT) recent performance, when its stock has declined 12% over the past month. But if you pay close attention, you might gather that its strong financials could mean that the stock could potentially see an increase in value in the long-term, given how markets usually reward companies with good financial health. Particularly, we will be paying attention to LeMaitre Vascular's ROE today.
Return on equity or ROE is an important factor to be considered by a shareholder because it tells them how effectively their capital is being reinvested. In other words, it is a profitability ratio which measures the rate of return on the capital provided by the company's shareholders.
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How Is ROE Calculated?
The formula for return on equity is:
Return on Equity = Net Profit (from continuing operations) ÷ Shareholders' Equity
So, based on the above formula, the ROE for LeMaitre Vascular is:
13% = US$47m ÷ US$363m (Based on the trailing twelve months to June 2025).
The 'return' refers to a company's earnings over the last year. One way to conceptualize this is that for each $1 of shareholders' capital it has, the company made $0.13 in profit.
View our latest analysis for LeMaitre Vascular
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. We now need to evaluate how much profit the company reinvests or "retains" for future growth which then gives us an idea about the growth potential of the company. 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.
LeMaitre Vascular's Earnings Growth And 13% ROE
To begin with, LeMaitre Vascular seems to have a respectable ROE. Further, the company's ROE is similar to the industry average of 11%. This probably goes some way in explaining LeMaitre Vascular's moderate 17% growth over the past five years amongst other factors.
Next, on comparing with the industry net income growth, we found that LeMaitre Vascular's growth is quite high when compared to the industry average growth of 13% in the same period, which is great to see.
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 LeMaitre Vascular fairly valued compared to other companies? These 3 valuation measures might help you decide.
Is LeMaitre Vascular Efficiently Re-investing Its Profits?
LeMaitre Vascular has a healthy combination of a moderate three-year median payout ratio of 41% (or a retention ratio of 59%) and a respectable amount of growth in earnings as we saw above, meaning that the company has been making efficient use of its profits.
Moreover, LeMaitre Vascular is determined to keep sharing its profits with shareholders which we infer from its long history of paying a dividend for at least ten years. Existing analyst estimates suggest that the company's future payout ratio is expected to drop to 29% over the next three years.
Conclusion
In total, we are pretty happy with LeMaitre Vascular's performance. In particular, it's great to see that the company is investing heavily into its business and along with a high rate of return, that has resulted in a sizeable growth in its earnings. That being so, a study of the latest analyst forecasts show that the company is expected to see a slowdown in its future earnings growth. To know more about the company's future earnings growth forecasts take a look at this free report on analyst forecasts for the company to find out more.
