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Select Water Solutions, Inc. (NYSE:WTTR) Stock's Been Sliding But Fundamentals Look Decent: Will The Market Correct The Share Price In The Future?

Simply Wall St · 06/26 10:04

With its stock down 20% over the past three months, it is easy to disregard Select Water Solutions (NYSE:WTTR). 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. Particularly, we will be paying attention to Select Water Solutions' ROE today.

Return on equity or ROE is an important factor to be considered by a shareholder because it tells them how effectively their capital is being reinvested. In short, ROE shows the profit each dollar generates with respect to its shareholder investments.

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How Is ROE Calculated?

The formula for return on equity is:

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

So, based on the above formula, the ROE for Select Water Solutions is:

4.5% = US$41m ÷ US$917m (Based on the trailing twelve months to March 2025).

The 'return' is the profit over the last twelve months. One way to conceptualize this is that for each $1 of shareholders' capital it has, the company made $0.04 in profit.

See our latest analysis for Select Water Solutions

Why Is ROE Important For 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 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.

Select Water Solutions' Earnings Growth And 4.5% ROE

As you can see, Select Water Solutions' ROE looks pretty weak. Even when compared to the industry average of 12%, the ROE figure is pretty disappointing. Despite this, surprisingly, Select Water Solutions saw an exceptional 74% net income growth over the past five years. Therefore, there could be other reasons behind this growth. For instance, the company has a low payout ratio or is being managed efficiently.

Next, on comparing with the industry net income growth, we found that Select Water Solutions' growth is quite high when compared to the industry average growth of 58% in the same period, which is great to see.

past-earnings-growth
NYSE:WTTR Past Earnings Growth June 26th 2025

Earnings growth is a huge factor in stock valuation. It’s important for an investor to know whether the market has priced in the company's expected earnings growth (or decline). This then helps them determine if the stock is placed for a bright or bleak future. If you're wondering about Select Water Solutions''s valuation, check out this gauge of its price-to-earnings ratio, as compared to its industry.

Is Select Water Solutions Using Its Retained Earnings Effectively?

Select Water Solutions has a three-year median payout ratio of 35% (where it is retaining 65% of its income) which is not too low or not too high. By the looks of it, the dividend is well covered and Select Water Solutions is reinvesting its profits efficiently as evidenced by its exceptional growth which we discussed above.

Besides, Select Water Solutions has been paying dividends over a period of three years. This shows that the company is committed to sharing profits with its shareholders. Based on the latest analysts' estimates, we found that the company's future payout ratio over the next three years is expected to hold steady at 37%. Regardless, the future ROE for Select Water Solutions is predicted to rise to 8.9% despite there being not much change expected in its payout ratio.

Summary

On the whole, we do feel that Select Water Solutions has some positive attributes. With a high rate of reinvestment, albeit at a low ROE, the company has managed to see a considerable growth in its earnings. That being so, a study of the latest analyst forecasts show that the company is expected to see a slowdown in its future earnings growth. Are these analysts expectations based on the broad expectations for the industry, or on the company's fundamentals? Click here to be taken to our analyst's forecasts page for the company.