JAC Recruitment Co., Ltd.'s (TSE:2124) Recent Stock Performance Looks Decent- Can Strong Fundamentals Be the Reason?

Most readers would already know that JAC Recruitment's (TSE:2124) stock increased by 7.5% over the past three months. Given its impressive performance, we decided to study the company's key financial indicators as a company's long-term fundamentals usually dictate market outcomes. Specifically, we decided to study JAC Recruitment'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 simpler terms, it measures the profitability of a company in relation to shareholder's equity.

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How To 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 JAC Recruitment is:

38% = JP¥7.0b ÷ JP¥18b (Based on the trailing twelve months to June 2025).

The 'return' is the income the business earned over the last year. That means that for every ¥1 worth of shareholders' equity, the company generated ¥0.38 in profit.

View our latest analysis for JAC Recruitment

What Has ROE Got To Do With Earnings Growth?

Thus far, we have learned that ROE measures how efficiently a company is generating its profits. 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. 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 JAC Recruitment's Earnings Growth And 38% ROE

First thing first, we like that JAC Recruitment has an impressive ROE. Additionally, the company's ROE is higher compared to the industry average of 16% which is quite remarkable. As a result, JAC Recruitment's exceptional 21% net income growth seen over the past five years, doesn't come as a surprise.

Next, on comparing with the industry net income growth, we found that JAC Recruitment's growth is quite high when compared to the industry average growth of 14% 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). By doing so, they will have an idea if the stock is headed into clear blue waters or if swampy waters await. Is 2124 fairly valued? This infographic on the company's intrinsic value has everything you need to know.

Is JAC Recruitment Using Its Retained Earnings Effectively?

The high three-year median payout ratio of 62% (implying that it keeps only 38% of profits) for JAC Recruitment suggests that the company's growth wasn't really hampered despite it returning most of the earnings to its shareholders.

Besides, JAC Recruitment has been paying dividends for at least ten years or more. This shows that the company is committed to sharing profits with its shareholders.

Summary

On the whole, we feel that JAC Recruitment's performance has been quite good. In particular, its high ROE is quite noteworthy and also the probable explanation behind its considerable earnings growth. Yet, the company is retaining a small portion of its profits. Which means that the company has been able to grow its earnings in spite of it, so that's not too bad. We also studied the latest analyst forecasts and found that the company's earnings growth is expected be similar to its current growth rate. Are these analysts expectations based on the broad expectations for the industry, or on the company's fundamentals? Click here to be taken to our analyst's forecasts page 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.