Chorus Aviation Inc.’s (TSE:CHR) Stock Has Shown Weakness Lately But Financial Prospects Look Decent: Is The Market Wrong?

With its stock down 2.1% over the past month, it is easy to disregard Chorus Aviation (TSE:CHR). However, the company’s fundamentals look pretty decent, and long-term financials are usually aligned with future market price movements. Specifically, we decided to study Chorus Aviation’s ROE in this article.

ROE or return on equity is a useful tool to assess how effectively a company can generate returns on the investment it received from its shareholders. Simply put, it is used to assess the profitability of a company in relation to its equity capital.

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Return on equity 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 Chorus Aviation is:

16% = CA$79m ÷ CA$508m (Based on the trailing twelve months to December 2025).

The ‘return’ is the income the business earned over the last year. So, this means that for every CA$1 of its shareholder’s investments, the company generates a profit of CA$0.16.

See our latest analysis for Chorus Aviation

Thus far, we have learned that ROE measures how efficiently a company is generating its profits. 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. Generally speaking, other things being equal, firms with a high return on equity and profit retention, have a higher growth rate than firms that don’t share these attributes.

At first glance, Chorus Aviation seems to have a decent ROE. Especially when compared to the industry average of 12% the company’s ROE looks pretty impressive. As you might expect, the 20% net income decline reported by Chorus Aviation is a bit of a surprise. Based on this, we feel that there might be other reasons which haven’t been discussed so far in this article that could be hampering the company’s growth. These include low earnings retention or poor allocation of capital.

However, when we compared Chorus Aviation’s growth with the industry we found that while the company’s earnings have been shrinking, the industry has seen an earnings growth of 52% in the same period. This is quite worrisome.

Earnings growth is a huge factor in stock valuation. The investor should try to establish if the expected growth or decline in earnings, whichever the case may be, is priced in. This then helps them determine if the stock is placed for a bright or bleak future. 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 Chorus Aviation is trading on a high P/E or a low P/E, relative to its industry.

Chorus Aviation’s low LTM (or last twelve month) payout ratio of 8.8% (or a retention ratio of 91%) over the last three years should mean that the company is retaining most of its earnings to fuel its growth but the company’s earnings have actually shrunk. This typically shouldn’t be the case when a company is retaining most of its earnings. So there could be some other explanations in that regard. For example, the company’s business may be deteriorating.

Moreover, Chorus Aviation 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. Upon studying the latest analysts’ consensus data, we found that the company’s future payout ratio is expected to rise to 24% over the next three years. Accordingly, the expected increase in the payout ratio explains the expected decline in the company’s ROE to 9.2%, over the same period.

Overall, we feel that Chorus Aviation certainly does have some positive factors to consider. Yet, the low earnings growth is a bit concerning, especially given that the company has a high rate of return and is reinvesting ma huge portion of its profits. By the looks of it, there could be some other factors, not necessarily in control of the business, that’s preventing growth. Additionally, the latest industry analyst forecasts show that analysts expect the company’s earnings to continue to shrink in the future. To know more about the latest analysts predictions for the company, check out this visualization of analyst forecasts for the company.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.