Is Marathon Nextgen Realty Limited's (NSE:MARATHON) Recent Stock Performance Tethered To Its Strong Fundamentals?

Marathon Nextgen Realty (NSE:MARATHON) has had a great run on the share market with its stock up by a significant 12% over the last week. Since the market usually pay for a company’s long-term fundamentals, we decided to study the company’s key performance indicators to see if they could be influencing the market. Particularly, we will be paying attention to Marathon Nextgen Realty'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. Simply put, it is used to assess the profitability of a company in relation to its equity capital.

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How Do You 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 Marathon Nextgen Realty is:

16% = ₹1.8b ÷ ₹11b (Based on the trailing twelve months to December 2024).

The 'return' is the income the business earned over the last year. Another way to think of that is that for every ₹1 worth of equity, the company was able to earn ₹0.16 in profit.

See our latest analysis for Marathon Nextgen Realty

What Is The Relationship Between ROE And Earnings Growth?

So far, we've learned that ROE is a measure of a company's profitability. Depending on how much of these profits the company reinvests or "retains", and how effectively it does so, we are then able to assess a company’s earnings growth potential. 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.

A Side By Side comparison of Marathon Nextgen Realty's Earnings Growth And 16% ROE

To begin with, Marathon Nextgen Realty seems to have a respectable ROE. Further, the company's ROE compares quite favorably to the industry average of 6.5%. This certainly adds some context to Marathon Nextgen Realty's exceptional 48% net income growth seen over the past five years. We believe that there might also be other aspects that are positively influencing the company's earnings growth. Such as - high earnings retention or an efficient management in place.

We then compared Marathon Nextgen Realty's net income growth with the industry and we're pleased to see that the company's growth figure is higher when compared with the industry which has a growth rate of 31% in the same 5-year period.

Earnings growth is a huge factor in stock valuation. What investors need to determine next is if the expected earnings growth, or the lack of it, is already built into the share price. This then helps them determine if the stock is placed for a bright or bleak future. If you're wondering about Marathon Nextgen Realty's's valuation, check out this gauge of its price-to-earnings ratio, as compared to its industry.

Is Marathon Nextgen Realty Making Efficient Use Of Its Profits?

Marathon Nextgen Realty has a really low three-year median payout ratio of 3.8%, meaning that it has the remaining 96% left over to reinvest into its business. So it looks like Marathon Nextgen Realty is reinvesting profits heavily to grow its business, which shows in its earnings growth.

Additionally, Marathon Nextgen Realty has paid dividends over a period of at least ten years which means that the company is pretty serious about sharing its profits with shareholders.

Conclusion

On the whole, we feel that Marathon Nextgen Realty's performance has been quite good. Particularly, we like that the company is reinvesting heavily into its business, and at a high rate of return. Unsurprisingly, this has led to an impressive earnings growth. If the company continues to grow its earnings the way it has, that could have a positive impact on its share price given how earnings per share influence long-term share prices. Not to forget, share price outcomes are also dependent on the potential risks a company may face. So it is important for investors to be aware of the risks involved in the business. To know the 2 risks we have identified for Marathon Nextgen Realty visit our risks dashboard for free.

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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.