Asahi Concrete Works Co., Ltd.'s (TSE:5268) Financials Are Too Obscure To Link With Current Share Price Momentum: What's In Store For the Stock?

Asahi Concrete Works (TSE:5268) has had a great run on the share market with its stock up by a significant 33% over the last three months. However, we decided to pay attention to the company's fundamentals which don't appear to give a clear sign about the company's financial health. Specifically, we decided to study Asahi Concrete Works' ROE in this article.

Return on Equity or ROE is a test of how effectively a company is growing its value and managing investors’ money. In other words, it is a profitability ratio which measures the rate of return on the capital provided by the company's shareholders.

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How To 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 Asahi Concrete Works is:

3.0% = JP¥363m ÷ JP¥12b (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 ¥0.03 in profit.

View our latest analysis for Asahi Concrete Works

What Has ROE Got To Do With 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.

A Side By Side comparison of Asahi Concrete Works' Earnings Growth And 3.0% ROE

When you first look at it, Asahi Concrete Works' ROE doesn't look that attractive. We then compared the company's ROE to the broader industry and were disappointed to see that the ROE is lower than the industry average of 6.9%. Thus, the low net income growth of 2.3% seen by Asahi Concrete Works over the past five years could probably be the result of the low ROE.

We then compared Asahi Concrete Works' net income growth with the industry and found that the company's growth figure is lower than the average industry growth rate of 7.7% in the same 5-year period, which is a bit concerning.

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. What is 5268 worth today? The intrinsic value infographic in our free research report helps visualize whether 5268 is currently mispriced by the market.

Is Asahi Concrete Works Using Its Retained Earnings Effectively?

Summary

In total, we're a bit ambivalent about Asahi Concrete Works' performance. Even though it appears to be retaining most of its profits, given the low ROE, investors may not be benefitting from all that reinvestment after all. The low earnings growth suggests our theory correct. Wrapping up, we would proceed with caution with this company and one way of doing that would be to look at the risk profile of the business. To know the 1 risk we have identified for Asahi Concrete Works visit our risks dashboard for free.

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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.