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Does Grand Canyon Education, Inc.'s (NASDAQ:LOPE) recent stock performance reflect its financial health?

Shares of Grand Canyon Education (NASDAQ:LOPE) are up 2.3% over the past week. Given its impressive performance, we decided to explore the company’s key financial metrics, as a company’s long-term fundamentals usually drive market outcomes. In this article, I chose to focus on his ROE for Grand Canyon Education.

Return on equity, or ROE, tests how effectively a company enhances its value and manages investors’ money. In other words, it is a rate of return that measures the rate of return on capital provided by the company’s shareholders.

See the latest analysis from Grand Canyon Education

How to calculate return on equity

of Formula for Return on Equity teeth:

Return on Equity = Net Income (from Continuing Operations) ÷ Shareholders’ Equity

So, based on the formula above, the ROE for Grand Canyon Education is:

34% = US$240 million ÷ US$706 million (based on the last 12 months to March 2022).

“Revenue” is the income a business earned in the last year. So for $1 worth of shareholders’ equity, the company generated his $0.34 profit.

What does ROE have to do with revenue growth?

So far we have learned that ROE is a measure of a company’s profitability. Based on the amount of profits the company chooses to reinvest or “retain”, the company’s ability to generate profits in the future can be assessed. All else being equal, companies with both high return on equity and high profit margins typically have higher growth rates compared to companies without the same capabilities.

Grand Canyon Education Revenue Growth and 34% ROE

First, we recognize that Grand Canyon Education has a very high ROE. Also, the company’s ROE is very high compared to the industry average of 8.0%. This probably laid the groundwork for Grand Canyon Education’s moderate net profit growth of 7.4% over the past five years.

Second, when we compared Grand Canyon Education’s net profit growth to the industry, we found that the company’s growth matched the industry’s average growth rate of 9.1% over the same period.

NasdaqGS:LOPE Historical Earnings Growth Jul 31, 2022

Earnings growth is an important metric to consider when evaluating stocks. The next thing investors need to determine is whether expected earnings growth, or lack thereof, is already baked into the stock price. This helps determine whether the stock is positioned for a bright future or a dark future. If you’re wondering about Grand Canyon Education’s valuation, check out this gauge of price/earnings ratios compared to the industry.

Is Grand Canyon Education Efficiently Utilizing Profits?

Grand Canyon Education does not currently pay dividends. This basically means that you are reinvesting all your profits back into your business. This definitely contributes to the decent revenue growth rate discussed above.

Overview

Overall, I feel that the performance of Grand Canyon Education is very good. Specifically, I like that the company reinvests most of its profits at a high rate of return. Of course, this has led the company to significant revenue growth. As such, the company’s revenue is expected to shrink in the future, according to the latest industry analyst forecasts.Learn more about the company’s future revenue growth projections here freedom For more information, see the company’s analyst forecasts report.

This article by Simply Wall St is general in nature. We provide comments based on historical data and analyst projections using only unbiased methodologies and our articles are not intended as financial advice. It is not a recommendation to buy or sell stocks and does not take into account your objectives or financial situation. We aim to deliver long-term focused analysis based on fundamental data. Please note that our analysis may not take into account the latest price sensitive company announcements or qualitative materials. Is not …