Japan Elevator Service Holdings Co.,Ltd.'s (TSE:6544) Stock Has Been Sliding But Fundamentals Look Strong: Is The Market Wrong?

With its stock down 9.8% over the past three months, it is easy to disregard Japan Elevator Service HoldingsLtd (TSE:6544). However, stock prices are usually driven by a company’s financial performance over the long term, which in this case looks quite promising. Particularly, we will be paying attention to Japan Elevator Service HoldingsLtd's ROE today.

Return on equity or ROE is a key measure used to assess how efficiently a company's management is utilizing the company's capital. Put another way, it reveals the company's success at turning shareholder investments into profits.

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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 Japan Elevator Service HoldingsLtd is:

31% = JP¥6.0b ÷ JP¥19b (Based on the trailing twelve months to June 2025).

The 'return' is the income the business earned over the last year. One way to conceptualize this is that for each ¥1 of shareholders' capital it has, the company made ¥0.31 in profit.

See our latest analysis for Japan Elevator Service HoldingsLtd

What Has ROE Got To Do With Earnings Growth?

We have already established that ROE serves as an efficient profit-generating gauge for a company's future earnings. 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.

Japan Elevator Service HoldingsLtd's Earnings Growth And 31% ROE

First thing first, we like that Japan Elevator Service HoldingsLtd has an impressive ROE. Second, a comparison with the average ROE reported by the industry of 8.8% also doesn't go unnoticed by us. As a result, Japan Elevator Service HoldingsLtd's exceptional 22% net income growth seen over the past five years, doesn't come as a surprise.

We then compared Japan Elevator Service HoldingsLtd'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 12% in the same 5-year period.

The basis for attaching value to a company is, to a great extent, tied to its earnings growth. The investor should try to establish if the expected growth or decline in earnings, whichever the case may be, is priced in. By doing so, they will have an idea if the stock is headed into clear blue waters or if swampy waters await. Is Japan Elevator Service HoldingsLtd fairly valued compared to other companies? These 3 valuation measures might help you decide.

Is Japan Elevator Service HoldingsLtd Efficiently Re-investing Its Profits?

Japan Elevator Service HoldingsLtd's three-year median payout ratio is a pretty moderate 44%, meaning the company retains 56% of its income. So it seems that Japan Elevator Service HoldingsLtd is reinvesting efficiently in a way that it sees impressive growth in its earnings (discussed above) and pays a dividend that's well covered.

Additionally, Japan Elevator Service HoldingsLtd has paid dividends over a period of eight years which means that the company is pretty serious about sharing its profits with shareholders.

Conclusion

In total, we are pretty happy with Japan Elevator Service HoldingsLtd'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. On studying current analyst estimates, we found that analysts expect the company to continue its recent growth streak. To know more about the company's future earnings growth forecasts take a look at this free report on analyst forecasts for the company to find out more.

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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.