Capital Clean Energy Carriers' (NASDAQ:CCEC) stock is up by a considerable 28% over the past three months. But the company's key financial indicators appear to be differing across the board and that makes us question whether or not the company's current share price momentum can be maintained. Particularly, we will be paying attention to Capital Clean Energy Carriers' ROE today.

Return on equity or ROE is a key measure used to assess how efficiently a company's management is utilizing the company's capital. Simply put, it is used to assess the profitability of a company in relation to its equity capital.

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How Is ROE Calculated?

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 Capital Clean Energy Carriers is:

2.5% = US$36m ÷ US$1.4b (Based on the trailing twelve months to March 2025).

The 'return' is the profit over the last twelve months. So, this means that for every $1 of its shareholder's investments, the company generates a profit of $0.03.

View our latest analysis for Capital Clean Energy Carriers

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 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.

Capital Clean Energy Carriers' Earnings Growth And 2.5% ROE

It is hard to argue that Capital Clean Energy Carriers' ROE is much good in and of itself. Even compared to the average industry ROE of 11%, the company's ROE is quite dismal. As a result, Capital Clean Energy Carriers' flat earnings over the past five years doesn't come as a surprise given its lower ROE.

Next, on comparing with the industry net income growth, we found that the industry grew its earnings by 28% over the last few years.

Earnings growth is an important metric to consider when valuing a stock. What investors need to determine next is if the expected earnings growth, or the lack of it, is already built into the share price. Doing so will help them establish if the stock's future looks promising or ominous. 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 Capital Clean Energy Carriers is trading on a high P/E or a low P/E, relative to its industry.

Is Capital Clean Energy Carriers Using Its Retained Earnings Effectively?

Capital Clean Energy Carriers has a low three-year median payout ratio of 19% (or a retention ratio of 81%) but the negligible earnings growth number doesn't reflect this as high growth usually follows high profit retention.

Moreover, Capital Clean Energy Carriers has been paying dividends for at least ten years or more suggesting that management must have perceived that the shareholders prefer dividends over earnings growth. Looking at the current analyst consensus data, we can see that the company's future payout ratio is expected to rise to 28% over the next three years. However, Capital Clean Energy Carriers' future ROE is expected to rise to 6.0% despite the expected increase in the company's payout ratio. We infer that there could be other factors that could be driving the anticipated growth in the company's ROE.

Summary

On the whole, we feel that the performance shown by Capital Clean Energy Carriers can be open to many interpretations. While the company does have a high rate of profit retention, its low rate of return is probably hampering its earnings growth. 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.

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