Is Winpak Ltd.'s (TSE:WPK) Recent Stock Performance Influenced By Its Financials In Any Way?

Winpak's (TSE:WPK) stock up by 6.6% over the past three months. Given that stock prices are usually aligned with a company's financial performance in the long-term, we decided to investigate if the company's decent financials had a hand to play in the recent price move. Specifically, we decided to study Winpak'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 other words, it is a profitability ratio which measures the rate of return on the capital provided by the company's shareholders.

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How Do You Calculate Return On Equity?

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 Winpak is:

10% = US$138m ÷ US$1.3b (Based on the trailing twelve months to September 2025).

The 'return' is the profit over the last twelve months. That means that for every CA$1 worth of shareholders' equity, the company generated CA$0.10 in profit.

View our latest analysis for Winpak

What Is The Relationship Between ROE And Earnings Growth?

We have already established that ROE serves as an efficient profit-generating gauge for a company's future earnings. We now need to evaluate how much profit the company reinvests or "retains" for future growth which then gives us an idea about the growth potential of the company. 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.

Winpak's Earnings Growth And 10% ROE

At first glance, Winpak's ROE doesn't look very promising. However, its ROE is similar to the industry average of 9.6%, so we won't completely dismiss the company. Having said that, Winpak has shown a modest net income growth of 8.0% over the past five years. Given the slightly low ROE, it is likely that there could be some other aspects that are driving this growth. For instance, the company has a low payout ratio or is being managed efficiently.

As a next step, we compared Winpak'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 0.05%.

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. This then helps them determine if the stock is placed for a bright or bleak future. Is WPK fairly valued? This infographic on the company's intrinsic value has everything you need to know.

Is Winpak Making Efficient Use Of Its Profits?

In Winpak's case, its respectable earnings growth can probably be explained by its low three-year median payout ratio of 4.3% (or a retention ratio of 96%), which suggests that the company is investing most of its profits to grow its business.

Besides, Winpak has been paying dividends for at least ten years or more. This shows that the company is committed to sharing profits with its shareholders. Looking at the current analyst consensus data, we can see that the company's future payout ratio is expected to rise to 5.6% over the next three years.

Conclusion

Overall, we feel that Winpak certainly does have some positive factors to consider. Despite its low rate of return, the fact that the company reinvests a very high portion of its profits into its business, no doubt contributed to its high earnings growth. With that said, the latest industry analyst forecasts reveal that the company's earnings growth is expected to slow down. 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.