Jamieson Wellness Inc.'s (TSE:JWEL) Stock Going Strong But Fundamentals Look Weak: What Implications Could This Have On The Stock?

Jamieson Wellness' (TSE:JWEL) stock is up by a considerable 9.6% over the past month. However, we decided to pay close attention to its weak financials as we are doubtful that the current momentum will keep up, given the scenario. In this article, we decided to focus on Jamieson Wellness' ROE.

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.

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How Do You Calculate Return On Equity?

The formula for ROE is:

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

So, based on the above formula, the ROE for Jamieson Wellness is:

9.9% = CA$52m ÷ CA$528m (Based on the trailing twelve months to March 2025).

The 'return' is the yearly profit. Another way to think of that is that for every CA$1 worth of equity, the company was able to earn CA$0.10 in profit.

See our latest analysis for Jamieson Wellness

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.

A Side By Side comparison of Jamieson Wellness' Earnings Growth And 9.9% ROE

At first glance, Jamieson Wellness' ROE doesn't look very promising. A quick further study shows that the company's ROE doesn't compare favorably to the industry average of 13% either. Accordingly, Jamieson Wellness' low net income growth of 3.5% over the past five years can possibly be explained by the low ROE amongst other factors.

We then compared Jamieson Wellness' net income growth with the industry and found that the company's growth figure is lower than the average industry growth rate of 7.4% in the same 5-year period, which is a bit concerning.

The basis for attaching value to a company is, to a great extent, tied to its earnings growth. What investors need to determine next is if the expected earnings growth, or the lack of it, is already built into the share price. This then helps them determine if the stock is placed for a bright or bleak future. Is Jamieson Wellness fairly valued compared to other companies? These 3 valuation measures might help you decide.

Is Jamieson Wellness Efficiently Re-investing Its Profits?

The high three-year median payout ratio of 65% (that is, the company retains only 35% of its income) over the past three years for Jamieson Wellness suggests that the company's earnings growth was lower as a result of paying out a majority of its earnings.

In addition, Jamieson Wellness has been paying dividends over a period of eight years suggesting that keeping up dividend payments is way more important to the management even if it comes at the cost of business growth. Our latest analyst data shows that the future payout ratio of the company is expected to drop to 41% over the next three years.

Summary

In total, we would have a hard think before deciding on any investment action concerning Jamieson Wellness. The company has seen a lack of earnings growth as a result of retaining very little profits and whatever little it does retain, is being reinvested at a very low rate of return. In brief, we think the company is risky and investors should think twice before making any final judgement on this company. To know the 2 risks we have identified for Jamieson Wellness visit our risks dashboard for free.

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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.