Kushikatsu Tanaka Holdings Co.'s (TSE:3547) Stock Is Going Strong: Is the Market Following Fundamentals?

Kushikatsu Tanaka Holdings (TSE:3547) has had a great run on the share market with its stock up by a significant 68% over the last three months. 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 Kushikatsu Tanaka Holdings' 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. In short, ROE shows the profit each dollar generates with respect to its shareholder investments.

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How Do You Calculate Return On Equity?

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 Kushikatsu Tanaka Holdings is:

24% = JP¥727m ÷ JP¥3.0b (Based on the trailing twelve months to May 2025).

The 'return' is the yearly profit. One way to conceptualize this is that for each ¥1 of shareholders' capital it has, the company made ¥0.24 in profit.

Check out our latest analysis for Kushikatsu Tanaka Holdings

Why Is ROE Important For Earnings Growth?

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

Kushikatsu Tanaka Holdings' Earnings Growth And 24% ROE

First thing first, we like that Kushikatsu Tanaka Holdings has an impressive ROE. Additionally, the company's ROE is higher compared to the industry average of 11% which is quite remarkable. Under the circumstances, Kushikatsu Tanaka Holdings' considerable five year net income growth of 44% was to be expected.

We then performed a comparison between Kushikatsu Tanaka Holdings' net income growth with the industry, which revealed that the company's growth is similar to the average industry growth of 48% in the same 5-year period.

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 Kushikatsu Tanaka Holdings fairly valued compared to other companies? These 3 valuation measures might help you decide.

Is Kushikatsu Tanaka Holdings Using Its Retained Earnings Effectively?

The three-year median payout ratio for Kushikatsu Tanaka Holdings is 26%, which is moderately low. The company is retaining the remaining 74%. By the looks of it, the dividend is well covered and Kushikatsu Tanaka Holdings is reinvesting its profits efficiently as evidenced by its exceptional growth which we discussed above.

Additionally, Kushikatsu Tanaka Holdings has paid dividends over a period of seven years which means that the company is pretty serious about sharing its profits with shareholders.

Summary

Overall, we are quite pleased with Kushikatsu Tanaka Holdings' performance. Specifically, we like that the company is reinvesting a huge chunk of its profits at a high rate of return. This of course has caused the company to see substantial growth in its earnings. That being so, a study of the latest analyst forecasts show that the company is expected to see a slowdown in its future earnings growth. 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.