Mueller Water Products’ (NYSE:MWA) stock is up by a considerable 5.2% over the past week. Given the company’s impressive performance, we decided to study its financial indicators more closely as a company’s financial health over the long-term usually dictates market outcomes. Specifically, we decided to study Mueller Water Products’ ROE in this article.
Return on Equity or ROE is a test of how effectively a company is growing its value and managing investors’ money. In simpler terms, it measures the profitability of a company in relation to shareholder’s equity.
How To 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 Mueller Water Products is:
20% = US$192m ÷ US$982m (Based on the trailing twelve months to September 2025).
The ‘return’ is the amount earned after tax over the last twelve months. Another way to think of that is that for every $1 worth of equity, the company was able to earn $0.20 in profit.
Why Is ROE Important For Earnings Growth?
We have already established that ROE serves as an efficient profit-generating gauge for a company’s future earnings. Based on how much of its profits the company chooses to reinvest or “retain”, we are then able to evaluate a company’s future ability to generate profits. 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.
Mueller Water Products’ Earnings Growth And 20% ROE
To begin with, Mueller Water Products seems to have a respectable ROE. Especially when compared to the industry average of 11% the company’s ROE looks pretty impressive. This probably laid the ground for Mueller Water Products’ moderate 18% net income growth seen over the past five years.
We then performed a comparison between Mueller Water Products’ net income growth with the industry, which revealed that the company’s growth is similar to the average industry growth of 16% in the same 5-year period.
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. By doing so, they will have an idea if the stock is headed into clear blue waters or if swampy waters await. What is MWA worth today? The intrinsic value infographic in our free research report helps visualize whether MWA is currently mispriced by the market.
Is Mueller Water Products Efficiently Re-investing Its Profits?
Mueller Water Products has a healthy combination of a moderate three-year median payout ratio of 39% (or a retention ratio of 61%) and a respectable amount of growth in earnings as we saw above, meaning that the company has been making efficient use of its profits.
Besides, Mueller Water Products has been paying dividends for at least ten years or more. This shows that the company is committed to sharing profits with its shareholders. Existing analyst estimates suggest that the company’s future payout ratio is expected to drop to 19% over the next three years.
Conclusion
Overall, we are quite pleased with Mueller Water Products’ performance. In particular, it’s great to see that the company is investing heavily into its business and along with a high rate of return, that has resulted in a sizeable growth in its earnings. We also studied the latest analyst forecasts and found that the company’s earnings growth is expected be similar to its current growth rate.