Will Weakness in W.W. Grainger, Inc.'s (NYSE:GWW) Stock Prove Temporary Given Strong Fundamentals?

W.W. Grainger (NYSE:GWW) has had a rough three months with its share price down 12%. However, a closer look at its sound financials might cause you to think again. Given that fundamentals usually drive long-term market outcomes, the company is worth looking at. Specifically, we decided to study W.W. Grainger's ROE in this article.

Return on equity or ROE is a key measure used to assess how efficiently a company's management is utilizing the company's capital. In short, ROE shows the profit each dollar generates with respect to its shareholder investments.

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How Do You Calculate Return On Equity?

The formula for return on equity is:

Return on Equity = Net Profit (from continuing operations) ÷ Shareholders' Equity

So, based on the above formula, the ROE for W.W. Grainger is:

49% = US$2.0b ÷ US$4.1b (Based on the trailing twelve months to June 2025).

The 'return' is the amount earned after tax over the last twelve months. So, this means that for every $1 of its shareholder's investments, the company generates a profit of $0.49.

View our latest analysis for W.W. Grainger

What Has ROE Got To Do With Earnings Growth?

So far, we've learned that ROE is a measure of a company's profitability. 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.

W.W. Grainger's Earnings Growth And 49% ROE

First thing first, we like that W.W. Grainger has an impressive ROE. Additionally, the company's ROE is higher compared to the industry average of 14% which is quite remarkable. As a result, W.W. Grainger's exceptional 22% net income growth seen over the past five years, doesn't come as a surprise.

As a next step, we compared W.W. Grainger's net income growth with the industry, and pleasingly, we found that the growth seen by the company is higher than the average industry growth of 17%.NYSE:GWW Past Earnings Growth August 15th 2025

Earnings growth is an important metric to consider when valuing a stock. The investor should try to establish if the expected growth or decline in earnings, whichever the case may be, is priced in. By doing so, they will have an idea if the stock is headed into clear blue waters or if swampy waters await. What is GWW worth today? The intrinsic value infographic in our free research report helps visualize whether GWW is currently mispriced by the market.

Story Continues

Is W.W. Grainger Making Efficient Use Of Its Profits?

W.W. Grainger's ' three-year median payout ratio is on the lower side at 21% implying that it is retaining a higher percentage (79%) of its profits. This suggests that the management is reinvesting most of the profits to grow the business as evidenced by the growth seen by the company.

Additionally, W.W. Grainger has paid dividends over a period of at least ten years which means that the company is pretty serious about sharing its profits with shareholders. Our latest analyst data shows that the future payout ratio of the company over the next three years is expected to be approximately 20%. Regardless, W.W. Grainger's ROE is speculated to decline to 39% despite there being no anticipated change in its payout ratio.

Summary

On the whole, we feel that W.W. Grainger's performance has been quite good. Specifically, we like that the company is reinvesting a huge chunk of its profits at a high rate of return. This of course has caused the company to see substantial growth in its earnings. With that said, the latest industry analyst forecasts reveal that the company's earnings growth is expected to slow down. 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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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.

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