Is Weakness In Amphastar Pharmaceuticals, Inc. (NASDAQ:AMPH) Stock A Sign That The Market Could be Wrong Given Its Strong Financial Prospects?

Amphastar Pharmaceuticals (NASDAQ:AMPH) has had a rough month with its share price down 9.3%. However, stock prices are usually driven by a company’s financial performance over the long term, which in this case looks quite promising. Particularly, we will be paying attention to Amphastar Pharmaceuticals’ ROE today.

Return on equity or ROE is a key measure used to assess how efficiently a company’s management is utilizing the company’s capital. 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 Do You Calculate Return On Equity?

ROE can be calculated by using the formula:

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

So, based on the above formula, the ROE for Amphastar Pharmaceuticals is:

18% = US$135m ÷ US$757m (Based on the trailing twelve months to June 2025).

The ‘return’ is the yearly profit. One way to conceptualize this is that for each $1 of shareholders’ capital it has, the company made $0.18 in profit.

See our latest analysis for Amphastar Pharmaceuticals

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. 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.

Amphastar Pharmaceuticals’ Earnings Growth And 18% ROE

To start with, Amphastar Pharmaceuticals’ ROE looks acceptable. Even when compared to the industry average of 18% the company’s ROE looks quite decent. This certainly adds some context to Amphastar Pharmaceuticals’ exceptional 41% net income growth seen over the past five years. However, there could also be other drivers behind this growth. For example, it is possible that the company’s management has made some good strategic decisions, or that the company has a low payout ratio.

As a next step, we compared Amphastar Pharmaceuticals’ net income growth with the industry, and pleasingly, we found that the growth seen by the company is higher than the average industry growth of 9.8%.

Earnings growth is an important metric to consider when valuing a stock. What investors need to determine next is if the expected earnings growth, or the lack of it, is already built into the share price. Doing so will help them establish if the stock’s future looks promising or ominous. If you’re wondering about Amphastar Pharmaceuticals”s valuation, check out this gauge of its price-to-earnings ratio, as compared to its industry.

Is Amphastar Pharmaceuticals Efficiently Re-investing Its Profits?

Amphastar Pharmaceuticals doesn’t pay any regular dividends currently which essentially means that it has been reinvesting all of its profits into the business. This definitely contributes to the high earnings growth number that we discussed above.

Summary

On the whole, we feel that Amphastar Pharmaceuticals’ performance has been quite good. Specifically, we like that the company is reinvesting a huge chunk of its profits at a high rate of return. This of course has caused the company to see substantial growth in its earnings. Having said that, the company’s earnings growth is expected to slow down, as forecasted in the current analyst estimates. 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.

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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.