Monarch Casino & Resort, Inc. (NASDAQ: MCRI) Shares On The Rise: Is Strong Financial Data Driving The Market?


Shares of Monarch Casino & Resort (NASDAQ: MCRI) have risen 6.7% in the past three months. Given that the market rewards strong long-term financials, we wonder if this is the case in this case. In this article, we have decided to focus on the ROE of Monarch Casino & Resort.

Return on equity or ROE is a key metric used to assess the efficiency with which the management of a business is using business capital. In other words, it is a profitability ratio that measures the rate of return on capital contributed by the shareholders of the company.

See our latest review for Monarch Casino & Resort

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 the Monarch Casino & Resort is:

15% = US $ 64 million US $ 424 million (based on the last twelve months to September 2021).

The “return” is the profit of the last twelve months. This means that for every dollar in shareholders’ equity, the company generated $ 0.15 in profit.

What is the relationship between ROE and profit growth?

So far, we’ve learned that ROE measures how efficiently a business generates profits. Based on the portion of its profits that the company chooses to reinvest or “keep”, we are then able to assess a company’s future ability to generate profits. Assuming everything else is equal, companies that have both a higher return on equity and higher profit retention are generally those that have a higher growth rate than companies that do not have the same characteristics.

A side-by-side comparison of Monarch Casino & Resort’s profit growth and 15% ROE

For starters, Monarch Casino & Resort appears to have a respectable ROE. And comparing with the industry, we found that the industry average ROE is similar at 15%. This certainly adds context to Monarch Casino & Resort’s moderate 9.4% net profit growth seen over the past five years.

Considering the fact that the industry’s profits fell 8.0% over the same period, the company’s net profit growth is quite remarkable.

NasdaqGS: MCRI Past Profit Growth November 30, 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. By doing this, they will have an idea if the stock is heading towards clear blue waters or if swampy waters are ahead of them. Has the market taken into account the future prospects of MCRI? You can find out in our latest Intrinsic Value infographic research report.

Is Monarch Casino & Resort Using Profits Efficiently?

Since Monarch Casino & Resort does not pay any dividends to its shareholders, we infer that the company has reinvested all of its profits to grow its business.

Conclusion

Overall, we are quite happy with the performance of Monarch Casino & Resort. In particular, we like the fact that the company is reinvesting heavily in its business, and at a high rate of return. Unsurprisingly, this led to impressive profit growth. That said, the latest forecast from industry analysts shows that the company’s earnings are expected to pick up. 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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