Is the Market Wrong on HireQuest, Inc. (NASDAQ:HQI)?

HireQuest (NASDAQ:HQI) has had a tough month with a 21% drop in share price. However, taking a closer look at the sound financial data might make you think again. Since fundamentals usually determine long-term market performance, it is worth looking at the company. In this article, we decided to focus on HireQuest’s ROE.

ROE or return on equity is a useful tool for assessing how effectively a company can generate returns on the investment it has received from its shareholders. In other words, it reveals the company’s success in turning shareholder investment into profit.

Check out our latest analysis for HireQuest

How to calculate the return on equity?

The formula for ROE is:

Return on equity = net profit (from continuing operations) ÷ equity

So, based on the above formula, the ROE for HireQuest is:

25% = US$12 million ÷ US$47 million (based on 12 months remaining to December 2021).

The “return” is the income the company has earned in the past year. So this means that for every $1 of its shareholders’ investments, the company generates a profit of $0.25.

What does ROE have to do with earnings growth?

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 of ​​the company’s growth potential. All else being equal, companies that have both a higher return on equity and a higher profit retention rate tend to be the ones with a faster growth rate compared to companies that don’t share the same characteristics.

A side-by-side comparison of HireQuest’s earnings growth and 25% ROE

First, we recognize that HireQuest has a significantly high ROE. In addition, the company’s ROE is higher compared to the industry average of 17%, which is quite remarkable. As a result, the exceptional 26% growth in HireQuest’s net income over the past five years comes as no surprise.

As the next step, we compared HireQuest’s net revenue growth to the industry, and we were pleased to find that the growth seen by the company exceeds the industry average growth of 16%.

past earnings growth

Earnings growth is a huge factor in stock valuation. The investor should try to determine whether the expected earnings growth or decline, whichever is the case, has been priced in. By doing so, they can determine whether the stock’s future looks promising or bleak. Is HQI reasonably valued? This infographic about the company’s NAV contains everything you need to know.

Is HireQuest making efficient use of its profits?

HireQuest has a three-year median payout ratio of 26% (keeping 74% of its income), which is neither too low nor too high. So it appears that HireQuest is efficiently reinvesting in a way that it sees impressive growth in its earnings (discussed above) and pays a well-backed dividend.

In addition to seeing growth in earnings, HireQuest has only recently started paying dividends. It’s entirely possible that the company wanted to impress its shareholders.

Conclusion

Overall, we feel that HireQuest’s performance has been pretty good. We especially like that the company is heavily reinvesting in its business, and at a high return. Unsurprisingly, this has led to impressive earnings growth. That said, the company’s earnings growth is expected to slow, as projected in current analysts’ estimates. Are these analyst expectations based on the broad expectations for the industry or on the fundamentals of the company? Click here to go to our analysts’ forecast page for the business.

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This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It is not a recommendation to buy or sell stocks and does not take into account your objectives or your financial situation. We strive to provide you with long-term focused analysis powered by fundamental data. Please note that our analysis may not take into account the latest price-sensitive company announcements or quality material. Simply Wall St has no position in said stocks.

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