Is MATSUDA SANGYO Co., Ltd.'s (TSE:7456) Recent Stock Performance Tethered To Its Strong Fundamentals?

Most readers would already be aware that MATSUDA SANGYO's (TSE:7456) stock increased significantly by 28% over the past three months. Given that the market rewards strong financials in the long-term, we wonder if that is the case in this instance. Specifically, we decided to study MATSUDA SANGYO's ROE in this article.

Return on equity or ROE is a key measure used to assess how efficiently a company's management is utilizing the company's capital. 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?

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 MATSUDA SANGYO is:

11% = JP¥11b ÷ JP¥103b (Based on the trailing twelve months to September 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 ¥0.11 in profit.

Check out our latest analysis for MATSUDA SANGYO

Why Is ROE Important For Earnings Growth?

So far, we've learned that ROE is a measure of a company's profitability. 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. 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.

MATSUDA SANGYO's Earnings Growth And 11% ROE

To start with, MATSUDA SANGYO's ROE looks acceptable. Especially when compared to the industry average of 8.6% the company's ROE looks pretty impressive. This certainly adds some context to MATSUDA SANGYO's decent 7.1% net income growth seen over the past five years.

Next, on comparing with the industry net income growth, we found that MATSUDA SANGYO's reported growth was lower than the industry growth of 11% over the last few years, which is not something we like 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). By doing so, they will have an idea if the stock is headed into clear blue waters or if swampy waters await. One good indicator of expected earnings growth is the P/E ratio which determines the price the market is willing to pay for a stock based on its earnings prospects. So, you may want to check if MATSUDA SANGYO is trading on a high P/E or a low P/E, relative to its industry.

Is MATSUDA SANGYO Using Its Retained Earnings Effectively?

MATSUDA SANGYO has a low three-year median payout ratio of 18%, meaning that the company retains the remaining 82% of its profits. This suggests that the management is reinvesting most of the profits to grow the business.

Besides, MATSUDA SANGYO 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

In total, we are pretty happy with MATSUDA SANGYO's performance. Particularly, we like that the company is reinvesting heavily into its business, and at a high rate of return. As a result, the decent growth in its earnings is not surprising. With that said, the latest industry analyst forecasts reveal that the company's earnings growth is expected to slow down. To know more about the latest analysts predictions for the company, check out this visualization of analyst forecasts 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.