The dismal stock performance of Natural Health Trends Corp. (NASDAQ:NHTC) reflects weak fundamentals

With its stock down 19% in the past month, it’s easy to overlook natural health trends (NASDAQ: NHTC). Since stock prices are usually influenced by a company’s long-term fundamentals, which in this case seem quite weak, we decided to study the company’s key financial indicators. In this article, we decided to focus on ROE from Natural Health Trends.

ROE or return on equity is a useful tool for evaluating how effectively a company can generate returns on the investment it has received from its shareholders. In other words, it is a profitability ratio that measures the rate of return on capital contributed by the company’s shareholders.

Check out our latest natural health trend analysis

How do you calculate return on equity?

Return on equity can be calculated using the formula:

Return on equity = Net income (from continuing operations) ÷ Equity

So, according to the formula above, the ROE for Natural Health Trends is:

1.5% = $827,000 ÷ $57 million (based on trailing 12 months to March 2022).

The “return” is the annual profit. One way to conceptualize this is that for every dollar of share capital it has, the company has made a profit of $0.01.

What is the relationship between ROE and earnings growth?

So far, we have learned that ROE measures how efficiently a company generates its profits. We now need to assess how much profit the company is reinvesting or “retaining” for future growth, which then gives us an idea of ​​the company’s growth potential. Assuming everything else remains unchanged, the higher the ROE and earnings retention, the higher a company’s growth rate compared to companies that don’t necessarily exhibit these characteristics.

A side-by-side comparison of Natural Health Trends earnings growth and 1.5% ROE

As you can see, the ROE from Natural Health Trends seems quite low. Even compared to the industry average ROE of 21%, the company’s ROE is pretty dismal. Therefore, it may not be wrong to say that the 66% decline in net income over five years observed by Natural Health Trends may have been the result of lower ROE. We believe there could be other factors at play here as well. For example, the company has a very high payout ratio or faces competitive pressures.

That being said, we compared the performance of Natural Health Trends with that of the industry and became concerned when we found that while the company had reduced profits, the industry had increased profits at a rate of 24 % over the same period.

NasdaqCM: NHTC Past Earnings Growth June 14, 2022

Earnings growth is an important metric to consider when evaluating a stock. What investors then need to determine is whether the expected earnings growth, or lack thereof, is already priced into the stock price. By doing so, they will get an idea if the stock is headed for clear blue waters or if swampy waters are waiting. If you’re wondering about Natural Health Trends’ valuation, check out this indicator of its price-earnings ratio, relative to its industry.

Does Natural Health Trends make effective use of its benefits?

With a three-year median payout ratio hitting 127%, Natural Health Trends’ earnings decline comes as no surprise as the company pays out a dividend that is beyond its means. Paying a dividend higher than reported earnings is not a sustainable decision. You can see the 6 risks we’ve identified for Natural Health Trends by visiting our risk dashboard for free on our platform here.

Additionally, Natural Health Trends has paid dividends over an eight-year period, suggesting that management prefers to keep paying dividends, even if earnings are down.


All in all, we would be extremely cautious before making a decision on natural health trends. In particular, its ROE is a huge disappointment, not to mention its lack of proper reinvestment in the business. As a result, its earnings growth was also quite disappointing. So far, we have only made a short study of the company’s growth data. To better understand Natural Health Trends’ past earnings growth, check out this visualization of past earnings, revenue, and cash flow.

This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts only using unbiased methodology and our articles are not intended to be financial advice. It is not a recommendation to buy or sell stocks and does not take into account your objectives or financial situation. Our goal is to bring you targeted long-term analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price-sensitive companies or qualitative materials. Simply Wall St has no position in the stocks mentioned.

Maria J. Book