Are Robust Financials Driving The Recent Rally In Japan Eyewear Holdings Co., Ltd.'s (TSE:5889) Stock?

Most readers would already be aware that Japan Eyewear Holdings' (TSE:5889) stock increased significantly by 15% over the past week. 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. Specifically, we decided to study Japan Eyewear Holdings' 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 Do You 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 Japan Eyewear Holdings is:

24% = JP¥4.1b ÷ JP¥17b (Based on the trailing twelve months to July 2025).

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 ¥0.24.

Check out our latest analysis for Japan Eyewear Holdings

What Is The Relationship Between ROE And Earnings Growth?

We have already established that ROE serves as an efficient profit-generating gauge for a company's future earnings. 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. 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.

Japan Eyewear Holdings' Earnings Growth And 24% ROE

First thing first, we like that Japan Eyewear Holdings has an impressive ROE. Additionally, the company's ROE is higher compared to the industry average of 9.4% which is quite remarkable. So, the substantial 51% net income growth seen by Japan Eyewear Holdings over the past five years isn't overly surprising.

Next, on comparing with the industry net income growth, we found that Japan Eyewear Holdings' growth is quite high when compared to the industry average growth of 12% in the same period, which is great to see.

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. What is 5889 worth today? The intrinsic value infographic in our free research report helps visualize whether 5889 is currently mispriced by the market.

Is Japan Eyewear Holdings Making Efficient Use Of Its Profits?

Japan Eyewear Holdings has a three-year median payout ratio of 30% (where it is retaining 70% of its income) which is not too low or not too high. So it seems that Japan Eyewear Holdings is reinvesting efficiently in a way that it sees impressive growth in its earnings (discussed above) and pays a dividend that's well covered.

While Japan Eyewear Holdings has been growing its earnings, it only recently started to pay dividends which likely means that the company decided to impress new and existing shareholders with a dividend.

Summary

In total, we are pretty happy with Japan Eyewear Holdings' performance. In particular, it's great to see that the company is investing heavily into its business and along with a high rate of return, that has resulted in a sizeable growth in its earnings. 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.