While some investors are already well versed in financial metrics (hat tip), this article is for those who would like to learn about Return On Equity (ROE) and why it is important. To keep the lesson grounded in practicality, we'll use ROE to better understand Laredo Petroleum, Inc. (NYSE:LPI).

ROE or return on equity is a useful tool to assess how effectively a company can generate returns on the investment it received from its shareholders. In short, ROE shows the profit each dollar generates with respect to its shareholder investments.

See our latest analysis for Laredo Petroleum

How Is ROE Calculated?

ROE 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 Laredo Petroleum is:

78% = US$529m ÷ US$679m (Based on the trailing twelve months to June 2022).

The 'return' is the yearly profit. So, this means that for every $1 of its shareholder's investments, the company generates a profit of $0.78.

Does Laredo Petroleum Have A Good Return On Equity?

By comparing a company's ROE with its industry average, we can get a quick measure of how good it is. The limitation of this approach is that some companies are quite different from others, even within the same industry classification. As you can see in the graphic below, Laredo Petroleum has a higher ROE than the average (26%) in the Oil and Gas industry.

That's clearly a positive. Bear in mind, a high ROE doesn't always mean superior financial performance. Aside from changes in net income, a high ROE can also be the outcome of high debt relative to equity, which indicates risk. To know the 4 risks we have identified for Laredo Petroleum visit our risks dashboard for free.

How Does Debt Impact Return On Equity?

Most companies need money -- from somewhere -- to grow their profits. That cash can come from issuing shares, retained earnings, or debt. In the first two cases, the ROE will capture this use of capital to grow. In the latter case, the debt required for growth will boost returns, but will not impact the shareholders' equity. That will make the ROE look better than if no debt was used.

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Laredo Petroleum's Debt And Its 78% ROE

It's worth noting the high use of debt by Laredo Petroleum, leading to its debt to equity ratio of 1.90. While no doubt that its ROE is impressive, we would have been even more impressed had the company achieved this with lower debt. Investors should think carefully about how a company might perform if it was unable to borrow so easily, because credit markets do change over time.

Conclusion

Return on equity is a useful indicator of the ability of a business to generate profits and return them to shareholders. A company that can achieve a high return on equity without debt could be considered a high quality business. If two companies have around the same level of debt to equity, and one has a higher ROE, I'd generally prefer the one with higher ROE.

Having said that, while ROE is a useful indicator of business quality, you'll have to look at a whole range of factors to determine the right price to buy a stock. It is important to consider other factors, such as future profit growth -- and how much investment is required going forward. So I think it may be worth checking this free report on analyst forecasts for the company.

Of course Laredo Petroleum may not be the best stock to buy. So you may wish to see this free collection of other companies that have high ROE and low debt.

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.

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SYDNEY, Australia, Aug. 02, 2022 (GLOBE NEWSWIRE) -- Lithium Power International Limited (LPI:AX) (“LPI” or “the Company”) is pleased to provide shareholders with an overview of quarterly activities for the period ending 30 June 2022 (“Quarter”, “Reporting Period”), including subsequent events that might have a significant impact between 30 June 2022 and the date of issuance of this Report. 

1 Based on diluted proforma ownership of LPI assuming LPI 1M VWAP share price as at market close on 21 June 2022 from IRESS.
2 Refer footnote 1 above.

Lithium Power’s Chairman, David Hannon, commented:

“The June 2022 quarter marked a significant period for the Company, with LPI entering agreements to consolidate 100% ownership of Maricunga Lithium Brine Project in Chile by way of a three-party all-scrip merger with its JV Partners. By holding 100% of the Project, LPI will be able to rapidly advance this significant asset by simplifying decision making, unlocking funding pathways and creating further shareholder value as we capitalise on the rapid global shift towards the electrification of transport and infrastructure.

Importantly, during the reporting period, LPI also significantly increased its tenement holding in Western Australia, with the largest ground coverage in the Greenbushes Region through the acquisition of CMC Lithium and it’s Greenbushes Project. We also acquired two new tenements in the mineral rich Eastern Goldfields of WA. With plans to demerge the company’s West Australian lithium assets, these acquisitions further bolster the portfolio of Western Lithium Limited, which we plan to list on the ASX later this year.

I would like to thank shareholders for their ongoing support as we look forward to an exciting 2023 Financial Year.”

To read the company’s full ASX release with the results of its Activity Report for the Quarter ended June 2022, please click here.

For further information, please contact:

Cristobal Garcia-Huidobro, CEO or Andrew Phillips – CFO Lithium Power International
Ph: +612 9276 1245
E: info@lithiumpowerinternational.com
www.lithiumpowerinternational.com
@LithiumPowerLPI

Jane Morgan – Investor and Media Relations
Ph: + 61 (0) 405 555 618
E: jm@janemorganmanagement.com.au

For U.S. and other international investor relations enquiries:

Arrowhead Business and Investment Decisions, LLC Thomas Renaud | Managing Director
42 Broadway, 17th Floor, New York, NY 10004 Ph: +1 212 619 6889
E: enquire@arrowheadbid.com 

Luxury Portfolio International® (LPI), the exclusive prime property network comprising more than 200 of the world’s premier independent residential real estate brokerages, continues its rapid growth in the first half of 2022.   

President Mickey Alam Khan announced today that 12 new Members have joined the enterprise, two of which represent LPI’s foray into new markets: Singapore and the Caribbean islands of Antigua and Barbuda.  

The full list of new Members includes: 

• Amelia Island Real Estate (Amelia Island, Fla.) 
• Arcadia Consulting (Singapore) 
• Bosley Real Estate (Toronto, ON, Canada) 
• Caribbean Luxury Villas (Antigua and Barbuda) 
• Homes in Paradise by Grace Bay Realty (Turks & Caicos) 
• M.E. Estates & Resorts International Consulting (Marbella and Sotogrande, Spain) 
• Pilkerton Realtors (Brentwood, Tenn.) 
• Resources Real Estate (Monmouth County, N.J.) 
• TrilliumWest (Guelph, ON, Canada) 
• Village Real Estate Services (Nashville, Tenn.) 
• Wareck D’Ostilio Real Estate, LLC d/b/a/ Houlihan Lawrence (Milford, Conn.) 
• Where in Rio (Brazil) 

These entities boast impressive standings in their respective markets, representing Luxury Portfolio International®’s unmatched global strength. All 12 are located within some of the wealthiest and most sought-after destinations for property purchases.   

“Being invited to join Luxury Portfolio International® not only gives these brokerages a competitive edge in their respective marketplaces, but elevates their global prominence,” said Alam Khan.  “They are now working alongside the most respected entities in the world, sharing best practices and strategies and building business in the affluent market. We are honored to welcome these new Members to the LPI family, whose qualities and commitments to excellence mirror our own, and we look forward to bringing new buyers from around the world to their unique markets.  These new brokers reinforce our global approach to luxury real estate, and we can’t wait to share more information about additional international Members we will be bringing aboard soon.” 

For more on these brokerages, visit their individual pages on the Luxury Portfolio Brokers tab on the Luxury Portfolio International® website.  

Maintaining independence and editorial freedom is essential to our mission of empowering investor success. We provide a platform for our authors to report on investments fairly, accurately, and from the investor’s point of view. We also respect individual opinions––they represent the unvarnished thinking of our people and exacting analysis of our research processes. Our authors can publish views that we may or may not agree with, but they show their work, distinguish facts from opinions, and make sure their analysis is clear and in no way misleading or deceptive.

To further protect the integrity of our editorial content, we keep a strict separation between our sales teams and authors to remove any pressure or influence on our analyses and research.

Read our editorial policy to learn more about our process.

Wall Street expects a year-over-year increase in earnings on higher revenues when Laredo Petroleum (LPI) reports results for the quarter ended June 2022. While this widely-known consensus outlook is important in gauging the company's earnings picture, a powerful factor that could impact its near-term stock price is how the genuine results compare to these estimates.

The earnings report, which is expected to be released on August 3, 2022, might help the stock move higher if these key numbers are better than expectations. On the other hand, if they miss, the stock may move lower.

While the sustainability of the immediate price change and future earnings expectations will mostly depend on management's discussion of business conditions on the earnings call, it's worth handicapping the probability of a positive EPS surprise.

Zacks Consensus Estimate

This oil and natural gas company is expected to post quarterly earnings of $7.65 per share in its upcoming report, which represents a year-over-year change of +347.4%.

Revenues are expected to be $431.52 million, up 46.6% from the year-ago quarter.

Estimate Revisions Trend

The consensus EPS estimate for the quarter has been revised 0.82% lower over the last 30 days to the current level. This is essentially a reflection of how the covering analysts have collectively reassessed their initial estimates over this period.

Investors should keep in mind that an aggregate change may not always reflect the direction of estimate revisions by each of the covering analysts.

Earnings Whisper

Estimate revisions ahead of a company's earnings release offer clues to the business conditions for the period whose results are coming out. This insight is at the core of our proprietary surprise prediction model -- the Zacks Earnings ESP (Expected Surprise Prediction).

The Zacks Earnings ESP compares the Most Accurate Estimate to the Zacks Consensus Estimate for the quarter; the Most Accurate Estimate is a more exact version of the Zacks Consensus EPS estimate. The idea here is that analysts revising their estimates right before an earnings release have the latest information, which could potentially be more accurate than what they and others contributing to the consensus had predicted earlier.

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Thus, a positive or negative Earnings ESP memorizing theoretically indicates the likely deviation of the genuine earnings from the consensus estimate. However, the model's predictive power is significant for positive ESP readings only.

A positive Earnings ESP is a strong predictor of an earnings beat, particularly when combined with a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold). Our research shows that stocks with this combination produce a positive surprise nearly 70% of the time, and a solid Zacks Rank actually increases the predictive power of Earnings ESP.

Please note that a negative Earnings ESP memorizing is not indicative of an earnings miss. Our research shows that it is difficult to predict an earnings beat with any degree of confidence for stocks with negative Earnings ESP readings and/or Zacks Rank of 4 (Sell) or 5 (Strong Sell).

How Have the Numbers Shaped Up for Laredo Petroleum?

For Laredo Petroleum, the Most Accurate Estimate is lower than the Zacks Consensus Estimate, suggesting that analysts have recently become bearish on the company's earnings prospects. This has resulted in an Earnings ESP of -2.06%.

On the other hand, the stock currently carries a Zacks Rank of #3.

So, this combination makes it difficult to conclusively predict that Laredo Petroleum will beat the consensus EPS estimate.

Does Earnings Surprise History Hold Any Clue?

While calculating estimates for a company's future earnings, analysts often consider to what extent it has been able to match past consensus estimates. So, it's worth taking a look at the surprise history for gauging its influence on the upcoming number.

For the last reported quarter, it was expected that Laredo Petroleum would post earnings of $6.51 per share when it actually produced earnings of $5.17, delivering a surprise of -20.58%.

Over the last four quarters, the company has beaten consensus EPS estimates just once.

Bottom Line

An earnings beat or miss may not be the sole basis for a stock moving higher or lower. Many stocks end up losing ground despite an earnings beat due to other factors that disappoint investors. Similarly, unforeseen catalysts help a number of stocks gain despite an earnings miss.

That said, betting on stocks that are expected to beat earnings expectations does increase the odds of success. This is why it's worth checking a company's Earnings ESP and Zacks Rank ahead of its quarterly release. Make sure to utilize our Earnings ESP Filter to uncover the best stocks to buy or sell before they've reported.

Laredo Petroleum doesn't appear a compelling earnings-beat candidate. However, investors should pay attention to other factors too for betting on this stock or staying away from it ahead of its earnings release.

Stay on top of upcoming earnings announcements with the Zacks Earnings Calendar.

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