Declining Stock and Solid Fundamentals: Is The Market Wrong About Dixon Technologies (India) Limited (NSE:DIXON)?

With its stock down 18% over the past three months, it is easy to disregard Dixon Technologies (India) (NSE:DIXON). 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. Particularly, we will be paying attention to Dixon Technologies (India)'s ROE today.

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 short, ROE shows the profit each dollar generates with respect to its shareholder investments.

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How To Calculate Return On Equity?

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 Dixon Technologies (India) is:

36% = ₹17b ÷ ₹47b (Based on the trailing twelve months to September 2025).

The 'return' refers to a company's earnings 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.

Check out our latest analysis for Dixon Technologies (India)

What Has ROE Got To Do With Earnings Growth?

Thus far, we have learned that ROE measures how efficiently a company is generating its profits. 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 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 Dixon Technologies (India)'s Earnings Growth And 36% ROE

To begin with, Dixon Technologies (India) has a pretty high ROE which is interesting. Secondly, even when compared to the industry average of 8.2% the company's ROE is quite impressive. So, the substantial 49% net income growth seen by Dixon Technologies (India) over the past five years isn't overly surprising.

Next, on comparing with the industry net income growth, we found that Dixon Technologies (India)'s growth is quite high when compared to the industry average growth of 15% in the same period, which is great to see.

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. Doing so will help them establish if the stock's future looks promising or ominous. Is Dixon Technologies (India) fairly valued compared to other companies? These 3 valuation measures might help you decide.

Is Dixon Technologies (India) Efficiently Re-investing Its Profits?

Dixon Technologies (India)'s ' three-year median payout ratio is on the lower side at 7.0% implying that it is retaining a higher percentage (93%) of its profits. So it seems like the management is reinvesting profits heavily to grow its business and this reflects in its earnings growth number.

Moreover, Dixon Technologies (India) is determined to keep sharing its profits with shareholders which we infer from its long history of seven years of paying a dividend. Upon studying the latest analysts' consensus data, we found that the company's future payout ratio is expected to drop to 4.2% over the next three years. Regardless, the future ROE for Dixon Technologies (India) is predicted to decline to 28% despite the anticipated decrease in the payout ratio. We reckon that there could probably be other factors that could be driving the forseen decline in the company's ROE.

Summary

In total, we are pretty happy with Dixon Technologies (India)'s 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. That being so, a study of the latest analyst forecasts show that the company is expected to see a slowdown in its future earnings growth. 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.