Liberty Oilfield Services (NYSE:LBRT) has had a great run on the share market with its stock up by a significant 35% over the last three months. Given that stock prices are usually aligned with a company's financial performance in the long-term, we decided to study its financial indicators more closely to see if they had a hand to play in the recent price move. In this article, we decided to focus on Liberty Oilfield Services' ROE.

Return on Equity or ROE is a test of how effectively a company is growing its value and managing investors money. Put another way, it reveals the company's success at turning shareholder investments into profits.

View our latest analysis for Liberty Oilfield Services

Return on equity can be calculated by using the formula:

Return on Equity = Net Profit (from continuing operations) Shareholders' Equity

So, based on the above formula, the ROE for Liberty Oilfield Services is:

5.6% = US$43m US$781m (Based on the trailing twelve months to March 2020).

The 'return' is the amount earned after tax over the last twelve months. So, this means that for every $1 of its shareholder's investments, the company generates a profit of $0.06.

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. Assuming everything else remains unchanged, the higher the ROE and profit retention, the higher the growth rate of a company compared to companies that don't necessarily bear these characteristics.

On the face of it, Liberty Oilfield Services' ROE is not much to talk about. A quick further study shows that the company's ROE doesn't compare favorably to the industry average of 7.2% either. In spite of this, Liberty Oilfield Services was able to grow its net income considerably, at a rate of 32% in the last five years. We reckon that there could be other factors at play here. For example, it is possible that the company's management has made some good strategic decisions, or that the company has a low payout ratio.

Next, on comparing Liberty Oilfield Services' net income growth with the industry, we found that the company's reported growth is similar to the industry average growth rate of 39% in the same period.

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Earnings growth is a huge factor in stock valuation. The investor should try to establish if the expected growth or decline in earnings, whichever the case may be, is priced in. This then helps them determine if the stock is placed for a bright or bleak future. Is LBRT fairly valued? This infographic on the company's intrinsic value has everything you need to know.

Liberty Oilfield Services has a really low three-year median payout ratio of 15%, meaning that it has the remaining 85% left over to reinvest into its business. So it seems like the management is reinvesting profits heavily to grow its business and this reflects in its earnings growth number.

In total, it does look like Liberty Oilfield Services has some positive aspects to its business. With a high rate of reinvestment, albeit at a low ROE, the company has managed to see a considerable growth in its earnings. That being so, the latest analyst forecasts show that the company will continue to see an expansion in its earnings. To know more about the latest analysts predictions for the company, check out this visualization of analyst forecasts for the company.

This article by Simply Wall St is general in nature. 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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Has Liberty Oilfield Services Inc.'s (NYSE:LBRT) Impressive Stock Performance Got Anything to Do With Its Fundamentals? - Yahoo Finance