Oxbridge Re Holdings Limited's (NASDAQ:OXBR) Stock Is Going Strong: Is the Market Following Fundamentals?

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Oxbridge Re Holdings’ (NASDAQ:OXBR) stock is up by a considerable 32% over the past month. Given the company’s impressive performance, we decided to study its financial indicators more closely as a company’s financial health over the long-term usually dictates market outcomes. Particularly, we will be paying attention to Oxbridge Re Holdings’ 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. Put another way, it reveals the company’s success at turning shareholder investments into profits.

Check out our latest analysis for Oxbridge Re Holdings

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 Oxbridge Re Holdings is:

48% = US$7.2m ÷ US$15m (Based on the trailing twelve months to September 2021).

The ‘return’ is the amount earned after tax over the last twelve months. That means that for every $1 worth of shareholders’ equity, the company generated $0.48 in profit.

Why Is ROE Important For Earnings Growth?

So far, we’ve learned that ROE is a measure of a company’s profitability. 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.

Oxbridge Re Holdings’ Earnings Growth And 48% ROE

Firstly, we acknowledge that Oxbridge Re Holdings has a significantly high ROE. Additionally, the company’s ROE is higher compared to the industry average of 11% which is quite remarkable. As a result, Oxbridge Re Holdings’ exceptional 27% net income growth seen over the past five years, doesn’t come as a surprise.

Next, on comparing with the industry net income growth, we found that Oxbridge Re Holdings’ growth is quite high when compared to the industry average growth of 12% in the same period, which is great to see.

past-earnings-growth

Earnings growth is an important metric to consider when valuing a stock. It’s important for an investor to know whether the market has priced in the company’s expected earnings growth (or decline). This then helps them determine if the stock is placed for a bright or bleak future. Is Oxbridge Re Holdings fairly valued compared to other companies? These 3 valuation measures might help you decide.

Is Oxbridge Re Holdings Efficiently Re-investing Its Profits?

Oxbridge Re Holdings doesn’t pay any dividend to its shareholders, meaning that the company has been reinvesting all of its profits into the business. This is likely what’s driving the high earnings growth number discussed above.

Conclusion

In total, we are pretty happy with Oxbridge Re Holdings’ performance. Particularly, we like that the company is reinvesting heavily into its business, and at a high rate of return. Unsurprisingly, this has led to an impressive earnings growth. If the company continues to grow its earnings the way it has, that could have a positive impact on its share price given how earnings per share influence long-term share prices. Not to forget, share price outcomes are also dependent on the potential risks a company may face. So it is important for investors to be aware of the risks involved in the business. Our risks dashboard would have the 3 risks we have identified for Oxbridge Re Holdings.

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.

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