Is Ranger Energy Services, Inc.'s (NYSE:RNGR) Recent Stock Performance Tethered To Its Strong Fundamentals?

Ranger Energy Services (NYSE:RNGR) has had a great run on the share market with its stock up by a significant 26% over the last three months. Since the market usually pay for a company’s long-term fundamentals, we decided to study the company’s key performance indicators to see if they could be influencing the market. Specifically, we decided to study Ranger Energy Services’ ROE in this article.

Return on Equity or ROE is a test of how effectively a company is growing its value and managing investors’ money. In other words, it is a profitability ratio which measures the rate of return on the capital provided by the company’s shareholders.

View our latest analysis for Ranger Energy Services

How Is ROE Calculated?

The formula for ROE is:

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

So, based on the above formula, the ROE for Ranger Energy Services is:

12%=US$34m ÷ US$274m (Based on the trailing twelve months to June 2023).

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 $0.12.

Why Is ROE Important For Earnings Growth?

We have already established that ROE serves as an efficient profit-generating gauge for a company’s future earnings. 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 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.

A Side By Side comparison of Ranger Energy Services’ Earnings Growth And 12% ROE

To start with, Ranger Energy Services’ ROE looks acceptable. Further, the company’s ROE is similar to the industry average of 14%. This probably goes some way in explaining Ranger Energy Services’ significant 48% net income growth over the past five years amongst other factors. We believe that there might also be other aspects that are positively influencing the company’s earnings growth. Such as – high earnings retention or an efficient management in place.

We then compared Ranger Energy Services’ net income growth with the industry and we’re pleased to see that the company’s growth figure is higher when compared with the industry which has a growth rate of 15% in the same 5-year period.

The basis for attaching value to a company is, to a great extent, tied to its earnings growth. 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. If you’re wondering about Ranger Energy Services”s valuation, check out this gauge of its price-to-earnings ratio, as compared to its industry.

Is Ranger Energy Services Efficiently Re-investing Its Profits?

Summary

Overall, we are quite pleased with Ranger Energy Services’ performance. Specifically, we like that the company is reinvesting a huge chunk of its profits at a high rate of return. This of course has caused the company to see substantial growth in its earnings. Having said that, the company’s earnings growth is expected to slow down, as forecasted in the current analyst estimates. Are these analysts expectations based on the broad expectations for the industry, or on the company’s fundamentals? Click here to be taken to our analyst’s forecasts page for the company.