Is Quality Power Electrical Equipments Limited's (NSE:QPOWER) Recent Stock Performance Tethered To Its Strong Fundamentals?

Most readers would already be aware that Quality Power Electrical Equipments' (NSE:QPOWER) stock increased significantly by 21% over the past three months. Since the market usually pay for a company’s long-term fundamentals, we decided to study the company’s key performance indicators to see if they could be influencing the market. In this article, we decided to focus on Quality Power Electrical Equipments' ROE.

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 simpler terms, it measures the profitability of a company in relation to shareholder's equity.

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How Is ROE Calculated?

ROE 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 Quality Power Electrical Equipments is:

17% = ₹1.0b ÷ ₹5.9b (Based on the trailing twelve months to June 2025).

The 'return' refers to a company's earnings over the last year. That means that for every ₹1 worth of shareholders' equity, the company generated ₹0.17 in profit.

View our latest analysis for Quality Power Electrical Equipments

Why Is ROE Important For Earnings Growth?

Thus far, we have learned that ROE measures how efficiently a company is generating its profits. 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.

Quality Power Electrical Equipments' Earnings Growth And 17% ROE

To begin with, Quality Power Electrical Equipments seems to have a respectable ROE. Further, the company's ROE compares quite favorably to the industry average of 13%. Probably as a result of this, Quality Power Electrical Equipments was able to see an impressive net income growth of 38% over the last five years. We believe that there might also be other aspects that are positively influencing the company's earnings growth. For instance, the company has a low payout ratio or is being managed efficiently.

As a next step, we compared Quality Power Electrical Equipments' net income growth with the industry and found that the company has a similar growth figure when compared with the industry average growth rate of 35% in the same period.

The basis for attaching value to a company is, to a great extent, tied to its earnings growth. It’s important for an investor to know whether the market has priced in the company's expected earnings growth (or decline). By doing so, they will have an idea if the stock is headed into clear blue waters or if swampy waters await. If you're wondering about Quality Power Electrical Equipments''s valuation, check out this gauge of its price-to-earnings ratio, as compared to its industry.

Is Quality Power Electrical Equipments Making Efficient Use Of Its Profits?

Quality Power Electrical Equipments' ' three-year median payout ratio is on the lower side at 11% implying that it is retaining a higher percentage (89%) of its profits. So it looks like Quality Power Electrical Equipments is reinvesting profits heavily to grow its business, which shows in its earnings growth.

Existing analyst estimates suggest that the company's future payout ratio is expected to drop to 5.6% over the next three years. Accordingly, the expected drop in the payout ratio explains the expected increase in the company's ROE to 34%, over the same period.

Summary

Overall, we are quite pleased with Quality Power Electrical Equipments' performance. 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 are expected to accelerate. To know more about the company's future earnings growth forecasts take a look at this free report on analyst forecasts for the company to find out more.

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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.