Are Boyd Group Services Inc.'s (TSE:BYD) Mixed Financials Driving The Negative Sentiment?

Boyd Group Services (TSE:BYD) has had a rough month with its share price down 7.2%. We, however decided to study the company's financials to determine if they have got anything to do with the price decline. Fundamentals usually dictate market outcomes so it makes sense to study the company's financials. Particularly, we will be paying attention to Boyd Group Services' ROE today.

Return on Equity or ROE is a test of how effectively a company is growing its value and managing investors’ money. In simpler terms, it measures the profitability of a company in relation to shareholder's equity.

We've found 21 US stocks that are forecast to pay a dividend yield of over 6% next year. See the full list for free.

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 Boyd Group Services is:

1.9% = US$16m ÷ US$848m (Based on the trailing twelve months to September 2025).

The 'return' is the yearly profit. So, this means that for every CA$1 of its shareholder's investments, the company generates a profit of CA$0.02.

Check out our latest analysis for Boyd Group Services

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. Based on how much of its profits the company chooses to reinvest or "retain", we are then able to evaluate a company's future ability to generate profits. 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.

Boyd Group Services' Earnings Growth And 1.9% ROE

It is hard to argue that Boyd Group Services' ROE is much good in and of itself. Even compared to the average industry ROE of 9.1%, the company's ROE is quite dismal. Hence, the flat earnings seen by Boyd Group Services over the past five years could probably be the result of it having a lower ROE.

As a next step, we compared Boyd Group Services' net income growth with the industry and discovered that the industry saw an average growth of 7.9% in the same period.

The basis for attaching value to a company is, to a great extent, tied to its earnings growth. What investors need to determine next is if the expected earnings growth, or the lack of it, is already built into the share price. This then helps them determine if the stock is placed for a bright or bleak future. If you're wondering about Boyd Group Services''s valuation, check out this gauge of its price-to-earnings ratio, as compared to its industry.

Is Boyd Group Services Making Efficient Use Of Its Profits?

Boyd Group Services' low three-year median payout ratio of 22%, (meaning the company retains78% of profits) should mean that the company is retaining most of its earnings and consequently, should see higher growth than it has reported.

Additionally, Boyd Group Services has paid dividends over a period of at least ten years, which means that the company's management is determined to pay dividends even if it means little to no earnings growth. Our latest analyst data shows that the future payout ratio of the company is expected to drop to 5.7% over the next three years. As a result, the expected drop in Boyd Group Services' payout ratio explains the anticipated rise in the company's future ROE to 8.6%, over the same period.

Conclusion

In total, we're a bit ambivalent about Boyd Group Services' performance. Even though it appears to be retaining most of its profits, given the low ROE, investors may not be benefitting from all that reinvestment after all. The low earnings growth suggests our theory correct. Having said that, looking at current analyst estimates, we found that the company's earnings growth rate is expected to see a huge improvement. 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

This article by Simply Wall St 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 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.