Lam Research (NASDAQ:LRCX) has experienced a strong performance on the share market, with its stock rising by 19% over the last month. In this article, we take a closer look at Lam Research’s Return on Equity (ROE) to assess its financial strength.
ROE is a measure of how effectively a company is utilizing its resources to generate profits for its shareholders. It is calculated by dividing the net profit by the shareholders’ equity. For Lam Research, the ROE is 45% based on the trailing twelve months to March 2024. This means that for every dollar of shareholders’ equity, the company generated $0.45 in profit.
A high ROE indicates efficient profit generation, which can lead to higher earnings growth potential. Lam Research’s ROE of 45% is significantly higher than the industry average of 15%, which has contributed to its moderate net income growth of 15% over the past five years. However, compared to the industry net income growth of 31%, Lam Research’s growth has been lower.
Despite this, Lam Research has shown a commitment to reinvesting its profits for future growth, with a low three-year median payout ratio of 18%. The company has also consistently paid dividends to shareholders over the past decade, indicating its dedication to sharing profits. Analysts expect Lam Research to continue its growth streak, with a predicted rise in ROE to 81% in the future.
In conclusion, Lam Research’s performance has been solid, with a focus on investing in its business and achieving a high rate of return. Analysts anticipate continued growth for the company. Investors interested in learning more about Lam Research’s future earnings growth forecasts can access a free report on analyst forecasts.