Shakti Pumps (India) Limited (NSE:SHAKTIPUMP) Stock Has Shown Weakness Lately But Financials Look Strong: Should Prospective Shareholders Make The Leap?

It is hard to get excited after looking at Shakti Pumps (India)'s (NSE:SHAKTIPUMP) recent performance, when its stock has declined 13% over the past three months. But if you pay close attention, you might gather that its strong financials could mean that the stock could potentially see an increase in value in the long-term, given how markets usually reward companies with good financial health. In this article, we decided to focus on Shakti Pumps (India)'s ROE.

ROE or return on equity is a useful tool to assess how effectively a company can generate returns on the investment it received from its shareholders. 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 Shakti Pumps (India) is:

36% = ₹4.1b ÷ ₹12b (Based on the trailing twelve months to June 2025).

The 'return' is the income the business earned over the last year. Another way to think of that is that for every ₹1 worth of equity, the company was able to earn ₹0.36 in profit.

View our latest analysis for Shakti Pumps (India)

What Has ROE Got To Do With Earnings Growth?

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

A Side By Side comparison of Shakti Pumps (India)'s Earnings Growth And 36% ROE

To begin with, Shakti Pumps (India) has a pretty high ROE which is interesting. Second, a comparison with the average ROE reported by the industry of 14% also doesn't go unnoticed by us. As a result, Shakti Pumps (India)'s exceptional 56% net income growth seen over the past five years, doesn't come as a surprise.

As a next step, we compared Shakti Pumps (India)'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 28%.

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. By doing so, they will have an idea if the stock is headed into clear blue waters or if swampy waters await. Is Shakti Pumps (India) fairly valued compared to other companies? These 3 valuation measures might help you decide.

Is Shakti Pumps (India) Making Efficient Use Of Its Profits?

Shakti Pumps (India) has a really low three-year median payout ratio of 15%, meaning that it has the remaining 85% left over to reinvest into its business. So it looks like Shakti Pumps (India) is reinvesting profits heavily to grow its business, which shows in its earnings growth.

Moreover, Shakti Pumps (India) is determined to keep sharing its profits with shareholders which we infer from its long history of paying a dividend for at least ten years.

Conclusion

Overall, we are quite pleased with Shakti Pumps (India)'s performance. Particularly, we like that the company is reinvesting heavily into its business, and at a high rate of return. Unsurprisingly, this has led to an impressive earnings growth.

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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.