Nomura Real Estate Master Fund, Inc.'s (TSE:3462) Fundamentals Look Pretty Strong: Could The Market Be Wrong About The Stock?

Nomura Real Estate Master Fund (TSE:3462) has had a rough week with its share price down 5.0%. But if you pay close attention, you might find that its key financial indicators look quite decent, which could mean that the stock could potentially rise in the long-term given how markets usually reward more resilient long-term fundamentals. Particularly, we will be paying attention to Nomura Real Estate Master Fund's ROE today.

Return on equity or ROE is an important factor to be considered by a shareholder because it tells them how effectively their capital is being reinvested. In other words, it is a profitability ratio which measures the rate of return on the capital provided by the company's shareholders.

Check out our latest analysis for Nomura Real Estate Master Fund

How Is ROE Calculated?

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 Nomura Real Estate Master Fund is:

5.0% = JP¥31b ÷ JP¥615b (Based on the trailing twelve months to August 2023).

The 'return' is the yearly profit. Another way to think of that is that for every ¥1 worth of equity, the company was able to earn ¥0.05 in profit.

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.

Nomura Real Estate Master Fund's Earnings Growth And 5.0% ROE

On the face of it, Nomura Real Estate Master Fund's ROE is not much to talk about. However, its ROE is similar to the industry average of 5.9%, so we won't completely dismiss the company. Even so, Nomura Real Estate Master Fund has shown a fairly decent growth in its net income which grew at a rate of 5.4%. 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 instance, the company has a low payout ratio or is being managed efficiently.

As a next step, we compared Nomura Real Estate Master Fund's net income growth with the industry, and pleasingly, we found that the growth seen by the company is higher than the average industry growth of 4.2%.

The basis for attaching value to a company is, to a great extent, tied to its earnings growth. The investor should try to establish if the expected growth or decline in earnings, whichever the case may be, is priced in. By doing so, they will have an idea if the stock is headed into clear blue waters or if swampy waters await. Is Nomura Real Estate Master Fund fairly valued compared to other companies? These 3 valuation measures might help you decide.

Is Nomura Real Estate Master Fund Efficiently Re-investing Its Profits?

Nomura Real Estate Master Fund seems to be paying out most of its income as dividends judging by its three-year median payout ratio of 58%, meaning the company retains only 42% of its income. However, this is typical for REITs as they are often required by law to distribute most of their earnings. In spite of this, the company was able to grow its earnings by a fair bit, as we saw above.

Moreover, Nomura Real Estate Master Fund is determined to keep sharing its profits with shareholders which we infer from its long history of eight years of paying a dividend.

Summary

In total, it does look like Nomura Real Estate Master Fund has some positive aspects to its business. That is, quite an impressive growth in earnings. However, the low profit retention means that the company's earnings growth could have been higher, had it been reinvesting a higher portion of its profits. That being so, according to the latest industry analyst forecasts, the company's earnings are expected to shrink in the future. 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.