With its stock down 8.0% over the past three months, it is easy to disregard John B. Sanfilippo & Son (NASDAQ:JBSS). However, a closer look at its sound financials might cause you to think again. Given that fundamentals usually drive long-term market outcomes, the company is worth looking at. In this article, we decided to focus on John B. Sanfilippo & Son's ROE.

Return on equity or ROE is a key measure used to assess how efficiently a company's management is utilizing the company's capital. Simply put, it is used to assess the profitability of a company in relation to its equity capital.

Check out our latest analysis for John B. Sanfilippo & Son

How To Calculate Return On Equity?

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 John B. Sanfilippo & Son is:

19% = US$60m ÷ US$323m (Based on the trailing twelve months to June 2024).

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 $0.19 in profit.

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. Assuming all else is equal, companies that have both a higher return on equity and higher profit retention are usually the ones that have a higher growth rate when compared to companies that don't have the same features.

John B. Sanfilippo & Son's Earnings Growth And 19% ROE

To start with, John B. Sanfilippo & Son's ROE looks acceptable. Further, the company's ROE compares quite favorably to the industry average of 14%. This certainly adds some context to John B. Sanfilippo & Son's decent 6.2% net income growth seen over the past five years.

Next, on comparing with the industry net income growth, we found that John B. Sanfilippo & Son's reported growth was lower than the industry growth of 8.2% over the last few years, which is not something we like 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). This then helps them determine if the stock is placed for a bright or bleak future. What is JBSS worth today? The intrinsic value infographic in our free research report helps visualize whether JBSS is currently mispriced by the market.