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Are Robust Financials Driving The Recent Rally In Cactus, Inc.'s (NYSE:WHD) Stock?

Simply Wall St · 2d ago

Most readers would already be aware that Cactus' (NYSE:WHD) stock increased significantly by 13% over the past three months. Given that the market rewards strong financials in the long-term, we wonder if that is the case in this instance. In this article, we decided to focus on Cactus' ROE.

Return on Equity or ROE is a test of how effectively a company is growing its value and managing investors’ money. Put another way, it reveals the company's success at turning shareholder investments into profits.

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How Do You Calculate Return On Equity?

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 Cactus is:

15% = US$211m ÷ US$1.4b (Based on the trailing twelve months to September 2025).

The 'return' is the amount earned after tax over the last twelve months. So, this means that for every $1 of its shareholder's investments, the company generates a profit of $0.15.

See our latest analysis for Cactus

What Has ROE Got To Do With 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.

Cactus' Earnings Growth And 15% ROE

To begin with, Cactus seems to have a respectable ROE. Further, the company's ROE compares quite favorably to the industry average of 8.9%. Probably as a result of this, Cactus was able to see an impressive net income growth of 33% over the last five years. However, there could also be other causes behind this 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.

We then compared Cactus' net income growth with the industry and found that the company's growth figure is lower than the average industry growth rate of 48% in the same 5-year period, which is a bit concerning.

past-earnings-growth
NYSE:WHD Past Earnings Growth December 25th 2025

The basis for attaching value to a company is, to a great extent, tied to its earnings growth. The investor should try to establish if the expected growth or decline in earnings, whichever the case may be, is priced in. By doing so, they will have an idea if the stock is headed into clear blue waters or if swampy waters await. What is WHD worth today? The intrinsic value infographic in our free research report helps visualize whether WHD is currently mispriced by the market.

Is Cactus Making Efficient Use Of Its Profits?

Cactus' three-year median payout ratio to shareholders is 19%, which is quite low. This implies that the company is retaining 81% of its profits. This suggests that the management is reinvesting most of the profits to grow the business as evidenced by the growth seen by the company.

Besides, Cactus has been paying dividends over a period of six years. This shows that the company is committed to sharing profits with its shareholders. Our latest analyst data shows that the future payout ratio of the company over the next three years is expected to be approximately 17%. Accordingly, forecasts suggest that Cactus' future ROE will be 17% which is again, similar to the current ROE.

Summary

On the whole, we feel that Cactus' performance has been quite good. Specifically, we like that the company is reinvesting a huge chunk of its profits at a high rate of return. This of course has caused the company to see a good amount of 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. 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.