Shiv Aum Steels Limited (NSE:SHIVAUM) Stock's Been Sliding But Fundamentals Look Decent: Will The Market Correct The Share Price In The Future?

Shiv Aum Steels (NSE:SHIVAUM) has had a rough week with its share price down 11%. But if you pay close attention, you might find that its key financial indicators look quite decent, which could mean that the stock could potentially rise in the long-term given how markets usually reward more resilient long-term fundamentals. In this article, we decided to focus on Shiv Aum Steels' ROE.

Return on Equity or ROE is a test of how effectively a company is growing its value and managing investors’ money. In short, ROE shows the profit each dollar generates with respect to its shareholder investments.

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How To 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 Shiv Aum Steels is:

8.4% = ₹98m ÷ ₹1.2b (Based on the trailing twelve months to March 2025).

The 'return' is the amount earned after tax over the last twelve months. That means that for every ₹1 worth of shareholders' equity, the company generated ₹0.08 in profit.

Check out our latest analysis for Shiv Aum Steels

What Is The Relationship Between ROE And 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. 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.

Shiv Aum Steels' Earnings Growth And 8.4% ROE

It is quite clear that Shiv Aum Steels' ROE is rather low. Still, the company's ROE is higher than the average industry ROE of 6.5% so that's certainly interesting. Particularly, the modest 17% net income growth seen by Shiv Aum Steels over the past five years is a positive. Bear in mind, the company does have a low ROE. It is just that the industry ROE is lower. So there might well be other reasons for the earnings to grow. Such as high earnings retention or an efficient management in place.

As a next step, we compared Shiv Aum Steels' net income growth with the industry and were disappointed to see that the company's growth is lower than the industry average growth of 30% in the same period.

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. Doing so will help them establish if the stock's future looks promising or ominous. If you're wondering about Shiv Aum Steels''s valuation, check out this gauge of its price-to-earnings ratio, as compared to its industry.

Is Shiv Aum Steels Efficiently Re-investing Its Profits?

Shiv Aum Steels doesn't pay any regular dividends currently which essentially means that it has been reinvesting all of its profits into the business. This definitely contributes to the decent earnings growth number that we discussed above.

Conclusion

In total, it does look like Shiv Aum Steels has some positive aspects to its business. Particularly, its earnings have grown respectably as we saw earlier, which was likely achieved due to the company reinvesting most of its earnings at a decent rate of return, to grow its business. While we won't completely dismiss the company, what we would do, is try to ascertain how risky the business is to make a more informed decision around the company. Our risks dashboard would have the 3 risks we have identified for Shiv Aum Steels.

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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.