Healthcare Trust of America's (NYSE:HTA) stock up by 7.9% over the past three months. However, its weak financial performance indicators makes us a bit doubtful if that trend could continue. Particularly, we will be paying attention to Healthcare Trust of America's ROE today.

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.

View our latest analysis for Healthcare Trust of America

How Is ROE Calculated?

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 Healthcare Trust of America is:

2.6% = US$83m ÷ US$3.2b (Based on the trailing twelve months to June 2021).

The 'return' is the yearly profit. One way to conceptualize this is that for each $1 of shareholders' capital it has, the company made $0.03 in profit.

What Has ROE Got To Do With 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 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.

Healthcare Trust of America's Earnings Growth And 2.6% ROE

As you can see, Healthcare Trust of America's ROE looks pretty weak. Even when compared to the industry average of 5.5%, the ROE figure is pretty disappointing. Thus, the low net income growth of 3.5% seen by Healthcare Trust of America over the past five years could probably be the result of it having a lower ROE.

Next, on comparing with the industry net income growth, we found that Healthcare Trust of America's reported growth was lower than the industry growth of 8.8% in the same period, which is not something we like to see.

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. What is HTA worth today? The intrinsic value infographic in our free research report helps visualize whether HTA is currently mispriced by the market.