Lloyds Metals and Energy Limited's (NSE:LLOYDSME) Fundamentals Look Pretty Strong: Could The Market Be Wrong About The Stock?

With its stock down 8.8% over the past three months, it is easy to disregard Lloyds Metals and Energy (NSE:LLOYDSME). 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. Specifically, we decided to study Lloyds Metals and Energy's ROE in this article.

Return on equity or ROE is an important factor to be considered by a shareholder because it tells them how effectively their capital is being reinvested. 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 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 Lloyds Metals and Energy is:

24% = ₹15b ÷ ₹64b (Based on the trailing twelve months to June 2025).

The 'return' refers to a company's earnings over the last year. So, this means that for every ₹1 of its shareholder's investments, the company generates a profit of ₹0.24.

Check out our latest analysis for Lloyds Metals and Energy

Why Is ROE Important For Earnings Growth?

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

Lloyds Metals and Energy's Earnings Growth And 24% ROE

At first glance, Lloyds Metals and Energy seems to have a decent ROE. On comparing with the average industry ROE of 11% the company's ROE looks pretty remarkable. This certainly adds some context to Lloyds Metals and Energy's exceptional 58% net income growth seen over the past five years. However, there could also be other causes behind this growth. For instance, the company has a low payout ratio or is being managed efficiently.

Next, on comparing with the industry net income growth, we found that Lloyds Metals and Energy's growth is quite high when compared to the industry average growth of 26% 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. It’s important for an investor to know whether the market has priced in the company's expected earnings growth (or decline). Doing so will help them establish if the stock's future looks promising or ominous. Is Lloyds Metals and Energy fairly valued compared to other companies? These 3 valuation measures might help you decide.

Is Lloyds Metals and Energy Using Its Retained Earnings Effectively?

Lloyds Metals and Energy's ' three-year median payout ratio is on the lower side at 3.8% implying that it is retaining a higher percentage (96%) of its profits. So it looks like Lloyds Metals and Energy is reinvesting profits heavily to grow its business, which shows in its earnings growth.

Besides, Lloyds Metals and Energy has been paying dividends over a period of three years. This shows that the company is committed to sharing profits with its shareholders. Existing analyst estimates suggest that the company's future payout ratio is expected to drop to 2.8% over the next three years. As a result, the expected drop in Lloyds Metals and Energy's payout ratio explains the anticipated rise in the company's future ROE to 40%, over the same period.

Conclusion

Overall, we are quite pleased with Lloyds Metals and Energy's performance. In particular, it's great to see that the company is investing heavily into its business and along with a high rate of return, that has resulted in a sizeable growth in its earnings. With that said, the latest industry analyst forecasts reveal that the company's earnings growth is expected to slow down. 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. 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.