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Are LifeVantage Corporation's (NASDAQ:LFVN) Fundamentals Good Enough to Warrant Buying Given The Stock's Recent Weakness?

Simply Wall St · 08/01 11:07

With its stock down 10% over the past week, it is easy to disregard LifeVantage (NASDAQ:LFVN). However, stock prices are usually driven by a company’s financials over the long term, which in this case look pretty respectable. Specifically, we decided to study LifeVantage's ROE in this article.

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 simpler terms, it measures the profitability of a company in relation to shareholder's equity.

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How Do You Calculate Return On Equity?

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 LifeVantage is:

27% = US$9.2m ÷ US$34m (Based on the trailing twelve months to March 2025).

The 'return' is the income the business earned over the last year. That means that for every $1 worth of shareholders' equity, the company generated $0.27 in profit.

Check out our latest analysis for LifeVantage

Why Is ROE Important For Earnings Growth?

So far, we've learned that ROE is a measure of a company's profitability. 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. 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.

LifeVantage's Earnings Growth And 27% ROE

First thing first, we like that LifeVantage has an impressive ROE. Additionally, the company's ROE is higher compared to the industry average of 12% which is quite remarkable. As you might expect, the 28% net income decline reported by LifeVantage doesn't bode well with us. We reckon that there could be some other factors at play here that are preventing the company's growth. For example, it could be that the company has a high payout ratio or the business has allocated capital poorly, for instance.

However, when we compared LifeVantage's growth with the industry we found that while the company's earnings have been shrinking, the industry has seen an earnings growth of 7.5% in the same period. This is quite worrisome.

past-earnings-growth
NasdaqCM:LFVN Past Earnings Growth August 1st 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). By doing so, they will have an idea if the stock is headed into clear blue waters or if swampy waters await. One good indicator of expected earnings growth is the P/E ratio which determines the price the market is willing to pay for a stock based on its earnings prospects. So, you may want to check if LifeVantage is trading on a high P/E or a low P/E, relative to its industry.

Is LifeVantage Using Its Retained Earnings Effectively?

In spite of a normal three-year median payout ratio of 47% (that is, a retention ratio of 53%), the fact that LifeVantage's earnings have shrunk is quite puzzling. So there might be other factors at play here which could potentially be hampering growth. For example, the business has faced some headwinds.

In addition, LifeVantage has been paying dividends over a period of three years suggesting that keeping up dividend payments is preferred by the management even though earnings have been in decline.

Summary

Overall, we feel that LifeVantage certainly does have some positive factors to consider. Although, we are disappointed to see a lack of growth in earnings even in spite of a high ROE and and a high reinvestment rate. We believe that there might be some outside factors that could be having a negative impact on the business. Having said that, looking at current analyst estimates, we found that the company's earnings growth rate is expected to see a huge improvement. 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.