Is KeePer Technical Laboratory Co., Ltd.'s (TSE:6036) Recent Stock Performance Tethered To Its Strong Fundamentals?

Most readers would already be aware that KeePer Technical Laboratory's (TSE:6036) stock increased significantly by 18% over the past three months. Given the company's impressive performance, we decided to study its financial indicators more closely as a company's financial health over the long-term usually dictates market outcomes. In this article, we decided to focus on KeePer Technical Laboratory'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.

View our latest analysis for KeePer Technical Laboratory

How Is ROE Calculated?

The formula for ROE is:

Return on Equity = Net Profit (from continuing operations) ÷ Shareholders' Equity

So, based on the above formula, the ROE for KeePer Technical Laboratory is:

31% = JP¥4.4b ÷ JP¥14b (Based on the trailing twelve months to June 2024).

The 'return' is the yearly profit. One way to conceptualize this is that for each ¥1 of shareholders' capital it has, the company made ¥0.31 in profit.

What Is The Relationship Between ROE And Earnings Growth?

So far, we've learned that ROE is a measure of a company's profitability. Depending on how much of these profits the company reinvests or "retains", and how effectively it does so, we are then able to assess a company’s earnings growth potential. 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.

KeePer Technical Laboratory's Earnings Growth And 31% ROE

Firstly, we acknowledge that KeePer Technical Laboratory has a significantly high ROE. Additionally, the company's ROE is higher compared to the industry average of 7.0% which is quite remarkable. As a result, KeePer Technical Laboratory's exceptional 33% net income growth seen over the past five years, doesn't come as a surprise.

Next, on comparing with the industry net income growth, we found that KeePer Technical Laboratory's growth is quite high when compared to the industry average growth of 8.2% in the same period, which is great to see.

Earnings growth is an important metric to consider when valuing a stock. The investor should try to establish if the expected growth or decline in earnings, whichever the case may be, is priced in. This then helps them determine if the stock is placed for a bright or bleak future. If you're wondering about KeePer Technical Laboratory's's valuation, check out this gauge of its price-to-earnings ratio, as compared to its industry.

Is KeePer Technical Laboratory Using Its Retained Earnings Effectively?

Summary

Overall, we are quite pleased with KeePer Technical Laboratory's performance. Particularly, we like that the company is reinvesting heavily into its business, and at a high rate of return. Unsurprisingly, this has led to an impressive earnings growth. 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.