Nissan Shatai Co., Ltd.'s (TSE:7222) Stock is Soaring But Financials Seem Inconsistent: Will The Uptrend Continue?

Nissan Shatai (TSE:7222) has had a great run on the share market with its stock up by a significant 15% over the last three months. However, we decided to pay attention to the company's fundamentals which don't appear to give a clear sign about the company's financial health. Particularly, we will be paying attention to Nissan Shatai's ROE today.

Return on Equity or ROE is a test of how effectively a company is growing its value and managing investors’ money. Put another way, it reveals the company's success at turning shareholder investments into profits.

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How Is ROE Calculated?

Return on equity 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 Nissan Shatai is:

3.4% = JP¥6.1b ÷ JP¥177b (Based on the trailing twelve months to June 2025).

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 ¥0.03.

Check out our latest analysis for Nissan Shatai

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 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 Nissan Shatai's Earnings Growth And 3.4% ROE

At first glance, Nissan Shatai's ROE doesn't look very promising. We then compared the company's ROE to the broader industry and were disappointed to see that the ROE is lower than the industry average of 5.8%. Thus, the low net income growth of 4.7% seen by Nissan Shatai over the past five years could probably be the result of the low ROE.

We then compared Nissan Shatai's net income growth with the industry and found that the company's growth figure is lower than the average industry growth rate of 21% in the same 5-year period, which is a bit concerning.

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). By doing so, they will have an idea if the stock is headed into clear blue waters or if swampy waters await. Is Nissan Shatai fairly valued compared to other companies? These 3 valuation measures might help you decide.

Is Nissan Shatai Making Efficient Use Of Its Profits?

Despite having a moderate three-year median payout ratio of 35% (implying that the company retains the remaining 65% of its income), Nissan Shatai's earnings growth was quite low. So there could be some other explanation in that regard. For instance, the company's business may be deteriorating.

Moreover, Nissan Shatai has been paying dividends for at least ten years or more suggesting that management must have perceived that the shareholders prefer dividends over earnings growth.

Summary

On the whole, we feel that the performance shown by Nissan Shatai can be open to many interpretations. While the company does have a high rate of profit retention, its low rate of return is probably hampering its earnings growth.

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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.