CACI International Inc's (NYSE:CACI) Stock Has Shown Weakness Lately But Financial Prospects Look Decent: Is The Market Wrong?

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CACI International (NYSE:CACI) has had a rough three months with its share price down 20%. But if you pay close attention, you might find that its key financial indicators look quite decent, which could mean that the stock could potentially rise in the long-term given how markets usually reward more resilient long-term fundamentals. Specifically, we decided to study CACI International’s ROE in this article.

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Return on equity or ROE is a key measure used to assess how efficiently a company’s management is utilizing the company’s capital. In other words, it is a profitability ratio which measures the rate of return on the capital provided by the company’s shareholders.

See our latest analysis for CACI International

ROE can be calculated by using the formula:

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

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So, based on the above formula, the ROE for CACI International is:

12% = US$454m ÷ US$3.7b (Based on the trailing twelve months to September 2024).

The ‘return’ refers to a company’s earnings over the last year. One way to conceptualize this is that for each $1 of shareholders’ capital it has, the company made $0.12 in profit.

We have already established that ROE serves as an efficient profit-generating gauge for a company’s future earnings. Depending on how much of these profits the company reinvests or “retains”, and how effectively it does so, we are then able to assess a company’s earnings growth potential. Generally speaking, other things being equal, firms with a high return on equity and profit retention, have a higher growth rate than firms that don’t share these attributes.

To start with, CACI International’s ROE looks acceptable. Be that as it may, the company’s ROE is still quite lower than the industry average of 20%. CACI International was still able to see a decent net income growth of 5.9% over the past five years. So, there might be other aspects that are positively influencing earnings growth. For example, it is possible that the company’s management has made some good strategic decisions, or that the company has a low payout ratio. However, not to forget, the company does have a decent ROE to begin with, just that it is lower than the industry average. So this also does lend some color to the fairly high earnings growth seen by the company.

As a next step, we compared CACI International’s net income growth with the industry and were disappointed to see that the company’s growth is lower than the industry average growth of 11% in the same period.

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