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    Are Strong Financial Prospects The Force That Is Driving The Momentum In Cavco Industries, Inc.'s NASDAQ:CVCO) Stock?

    Simply Wall St·07/16/2025 10:45:58
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    Cavco Industries' (NASDAQ:CVCO) stock is up by a considerable 9.2% over the past month. Given the company's impressive performance, we decided to study its financial indicators more closely as a company's financial health over the long-term usually dictates market outcomes. In this article, we decided to focus on Cavco Industries' ROE.

    Return on equity or ROE is a key measure used to assess how efficiently a company's management is utilizing the company's capital. Simply put, it is used to assess the profitability of a company in relation to its equity capital.

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    How Do You Calculate Return On Equity?

    The formula for ROE is:

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

    So, based on the above formula, the ROE for Cavco Industries is:

    16% = US$171m ÷ US$1.1b (Based on the trailing twelve months to March 2025).

    The 'return' is the yearly profit. Another way to think of that is that for every $1 worth of equity, the company was able to earn $0.16 in profit.

    See our latest analysis for Cavco Industries

    What Is The Relationship Between ROE And 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.

    Cavco Industries' Earnings Growth And 16% ROE

    To start with, Cavco Industries' ROE looks acceptable. Even when compared to the industry average of 15% the company's ROE looks quite decent. This probably goes some way in explaining Cavco Industries' moderate 15% growth over the past five years amongst other factors.

    We then compared Cavco Industries' 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 11% in the same 5-year period.

    past-earnings-growth
    NasdaqGS:CVCO Past Earnings Growth July 16th 2025

    The basis for attaching value to a company is, to a great extent, tied to its earnings growth. The investor should try to establish if the expected growth or decline in earnings, whichever the case may be, is priced in. Doing so will help them establish if the stock's future looks promising or ominous. Is Cavco Industries fairly valued compared to other companies? These 3 valuation measures might help you decide.

    Is Cavco Industries Efficiently Re-investing Its Profits?

    Cavco Industries doesn't pay any regular dividends, meaning that all of its profits are being reinvested in the business, which explains the fair bit of earnings growth the company has seen.

    Summary

    On the whole, we feel that Cavco Industries' performance has been quite good. Particularly, we like that the company is reinvesting heavily into its business, and at a high rate of return. Unsurprisingly, this has led to an impressive earnings growth. Having said that, the company's earnings growth is expected to slow down, as forecasted in the current analyst estimates. To know more about the company's future earnings growth forecasts take a look at this free report on analyst forecasts for the company to find out more.