Jindal Stainless (Hisar) Limited (NSE:JSLHISAR) Stock's Been Sliding But Fundamentals Look Decent: Will The Market Correct The Share Price In The Future?

Jindal Stainless (Hisar) (NSE:JSLHISAR) has had a rough month with its share price down 21%. However, the company's fundamentals look pretty decent, and long-term financials are usually aligned with future market price movements. Particularly, we will be paying attention to Jindal Stainless (Hisar)'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 other words, it is a profitability ratio which measures the rate of return on the capital provided by the company's shareholders.

See our latest analysis for Jindal Stainless (Hisar)

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 Jindal Stainless (Hisar) is:

11% = ₹2.7b ÷ ₹24b (Based on the trailing twelve months to September 2020).

The 'return' is the amount earned after tax over the last twelve months. So, this means that for every ₹1 of its shareholder's investments, the company generates a profit of ₹0.11.

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 everything else remains unchanged, the higher the ROE and profit retention, the higher the growth rate of a company compared to companies that don't necessarily bear these characteristics.

Jindal Stainless (Hisar)'s Earnings Growth And 11% ROE

On the face of it, Jindal Stainless (Hisar)'s ROE is not much to talk about. However, the fact that the company's ROE is higher than the average industry ROE of 7.1%, is definitely interesting. Consequently, this likely laid the ground for the decent growth of 9.1% seen over the past five years by Jindal Stainless (Hisar). That being said, the company does have a slightly low ROE to begin with, just that it is higher than the industry average. Therefore, the growth in earnings could also be the result of other factors. E.g the company has a low payout ratio or could belong to a high growth industry.

Next, on comparing with the industry net income growth, we found that Jindal Stainless (Hisar)'s reported growth was lower than the industry growth of 13% in the same period, which is not something we like to see.

Earnings growth is an important metric to consider when valuing a stock. It’s important for an investor to know whether the market has priced in the company's expected earnings growth (or decline). This then helps them determine if the stock is placed for a bright or bleak future. If you're wondering about Jindal Stainless (Hisar)'s's valuation, check out this gauge of its price-to-earnings ratio, as compared to its industry.

Is Jindal Stainless (Hisar) Using Its Retained Earnings Effectively?

Conclusion

Overall, we feel that Jindal Stainless (Hisar) certainly does have some positive factors to consider. In particular, it's great to see that the company is investing heavily into its business and along with a moderate rate of return, that has resulted in a respectable growth in its earnings. That being so, the latest analyst forecasts show that the company will continue to see an expansion in its earnings. 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. 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.
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