Should Weakness in Mitsuuroko Group Holdings Co.,Ltd.'s (TSE:8131) Stock Be Seen As A Sign That Market Will Correct The Share Price Given Decent Financials?

With its stock down 21% over the past month, it is easy to disregard Mitsuuroko Group HoldingsLtd (TSE:8131). However, the company's fundamentals look pretty decent, and long-term financials are usually aligned with future market price movements. In this article, we decided to focus on Mitsuuroko Group HoldingsLtd's ROE.

Return on equity or ROE is a key measure used to assess how efficiently a company's management is utilizing the company's capital. In simpler terms, it measures the profitability of a company in relation to shareholder's equity.

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How Do You 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 Mitsuuroko Group HoldingsLtd is:

8.0% = JP¥7.8b ÷ JP¥97b (Based on the trailing twelve months to December 2024).

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 ¥0.08.

See our latest analysis for Mitsuuroko Group HoldingsLtd

Why Is ROE Important For 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. 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 Mitsuuroko Group HoldingsLtd's Earnings Growth And 8.0% ROE

At first glance, Mitsuuroko Group HoldingsLtd's ROE doesn't look very promising. Yet, a closer study shows that the company's ROE is similar to the industry average of 8.0%. Particularly, the exceptional 22% net income growth seen by Mitsuuroko Group HoldingsLtd over the past five years is pretty remarkable. Taking into consideration that the ROE is not particularly high, we reckon that there could also be other factors at play which could be influencing the company's growth. For example, it is possible that the company's management has made some good strategic decisions, or that the company has a low payout ratio.

We then compared Mitsuuroko Group 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 16% in the same 5-year period.

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. Has the market priced in the future outlook for 8131? You can find out in our latest intrinsic value infographic research report

Is Mitsuuroko Group HoldingsLtd Making Efficient Use Of Its Profits?

Mitsuuroko Group HoldingsLtd's three-year median payout ratio is a pretty moderate 31%, meaning the company retains 69% of its income. So it seems that Mitsuuroko Group 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.

Moreover, Mitsuuroko Group HoldingsLtd is determined to keep sharing its profits with shareholders which we infer from its long history of paying a dividend for at least ten years.

Conclusion

On the whole, we do feel that Mitsuuroko Group HoldingsLtd has some positive attributes. Even in spite of the low rate of return, the company has posted impressive earnings growth as a result of reinvesting heavily into its business.

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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.