Xpro India Limited's (NSE:XPROINDIA) Stock Has Shown Weakness Lately But Financial Prospects Look Decent: Is The Market Wrong?

With its stock down 11% over the past week, it is easy to disregard Xpro India (NSE:XPROINDIA). However, stock prices are usually driven by a company’s financials over the long term, which in this case look pretty respectable. Particularly, we will be paying attention to Xpro India's ROE today.

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 Do You Calculate Return On Equity?

The formula for return on equity is:

Return on Equity = Net Profit (from continuing operations) ÷ Shareholders' Equity

So, based on the above formula, the ROE for Xpro India is:

3.0% = ₹185m ÷ ₹6.1b (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 ₹0.03.

Check out our latest analysis for Xpro 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. 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. 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.

A Side By Side comparison of Xpro India's Earnings Growth And 3.0% ROE

It is hard to argue that Xpro India's ROE is much good in and of itself. Even compared to the average industry ROE of 10%, the company's ROE is quite dismal. In spite of this, Xpro India was able to grow its net income considerably, at a rate of 21% in the last five years. We reckon that there could be other factors at play here. For example, it is possible that the company's management has made some good strategic decisions, or that the company has a low payout ratio.

Next, on comparing with the industry net income growth, we found that Xpro India's growth is quite high when compared to the industry average growth of 9.4% in the same period, which is great to see.

Earnings growth is a huge factor in stock valuation. 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 Xpro India fairly valued compared to other companies? These 3 valuation measures might help you decide.

Is Xpro India Making Efficient Use Of Its Profits?

Xpro India has a really low three-year median payout ratio of 9.2%, meaning that it has the remaining 91% left over to reinvest into its business. So it looks like Xpro India is reinvesting profits heavily to grow its business, which shows in its earnings growth.

Additionally, Xpro India has paid dividends over a period of three years which means that the company is pretty serious about sharing its profits with shareholders.

Summary

In total, it does look like Xpro India has some positive aspects to its business. Despite its low rate of return, the fact that the company reinvests a very high portion of its profits into its business, no doubt contributed to its high earnings growth. 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. You can see the 1 risk we have identified for Xpro India by visiting our risks dashboard for free on our platform here.

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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.