Do Its Financials Have Any Role To Play In Driving Endeavour Mining plc’s (TSE:EDV) Stock Up Recently?

Endeavour Mining’s (TSE:EDV) stock is up by a considerable 25% over the past three months. We wonder if and what role the company’s financials play in that price change as a company’s long-term fundamentals usually dictate market outcomes. In this article, we decided to focus on Endeavour Mining’s ROE.

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. Simply put, it is used to assess the profitability of a company in relation to its equity capital.

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How To Calculate Return On Equity?

The formula for ROE is:

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

So, based on the above formula, the ROE for Endeavour Mining is:

12% = US$385m ÷ US$3.2b (Based on the trailing twelve months to June 2025).

The ‘return’ is the income the business earned over the last year. So, this means that for every CA$1 of its shareholder’s investments, the company generates a profit of CA$0.12.

View our latest analysis for Endeavour Mining

What Has ROE Got To Do With Earnings Growth?

So far, we’ve learned that ROE is a measure of a company’s profitability. 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. Generally speaking, other things being equal, firms with a high return on equity and profit retention, have a higher growth rate than firms that don’t share these attributes.

A Side By Side comparison of Endeavour Mining’s Earnings Growth And 12% ROE

To start with, Endeavour Mining’s ROE looks acceptable. Even when compared to the industry average of 12% the company’s ROE looks quite decent. For this reason, Endeavour Mining’s five year net income decline of 23% raises the question as to why the decent ROE didn’t translate into growth. So, there might be some other aspects that could explain this. These include low earnings retention or poor allocation of capital.

So, as a next step, we compared Endeavour Mining’s performance against the industry and were disappointed to discover that while the company has been shrinking its earnings, the industry has been growing its earnings at a rate of 14% over the last few years.

Earnings growth is an important metric to consider when valuing a stock. The investor should try to establish if the expected growth or decline in earnings, whichever the case may be, is priced in. Doing so will help them establish if the stock’s future looks promising or ominous. Is EDV fairly valued? This infographic on the company’s intrinsic value has everything you need to know.

Is Endeavour Mining Efficiently Re-investing Its Profits?

With a high three-year median payout ratio of 68% (implying that 32% of the profits are retained), most of Endeavour Mining’s profits are being paid to shareholders, which explains the company’s shrinking earnings. The business is only left with a small pool of capital to reinvest – A vicious cycle that doesn’t benefit the company in the long-run.

Additionally, Endeavour Mining has paid dividends over a period of five years, which means that the company’s management is rather focused on keeping up its dividend payments, regardless of the shrinking earnings. 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 56%. Regardless, the future ROE for Endeavour Mining is predicted to rise to 28% despite there being not much change expected in its payout ratio.

Summary

On the whole, we do feel that Endeavour Mining has some positive attributes. Although, we are disappointed to see a lack of growth in earnings even in spite of a high ROE. Bear in mind, the company reinvests a small portion of its profits, which means that investors aren’t reaping the benefits of the high rate of return. That being so, the latest industry analyst forecasts show that the analysts are expecting to see a huge improvement in the company’s earnings growth rate. Are these analysts expectations based on the broad expectations for the industry, or on the company’s fundamentals? Click here to be taken to our analyst’s forecasts page for the company.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.