Is Hamamatsu Photonics K.K.'s (TSE:6965) Recent Price Movement Underpinned By Its Weak Fundamentals?

With its stock down 10% over the past three months, it is easy to disregard Hamamatsu Photonics K.K (TSE:6965). We, however decided to study the company's financials to determine if they have got anything to do with the price decline. Fundamentals usually dictate market outcomes so it makes sense to study the company's financials. Particularly, we will be paying attention to Hamamatsu Photonics K.K's ROE today.

ROE or return on equity is a useful tool to assess how effectively a company can generate returns on the investment it received from its shareholders. 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?

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 Hamamatsu Photonics K.K is:

4.7% = JP¥15b ÷ JP¥313b (Based on the trailing twelve months to June 2025).

The 'return' is the amount earned after tax over the last twelve months. Another way to think of that is that for every ¥1 worth of equity, the company was able to earn ¥0.05 in profit.

Check out our latest analysis for Hamamatsu Photonics K.K

What Is The Relationship Between ROE And 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 everything else remains unchanged, the higher the ROE and profit retention, the higher the growth rate of a company compared to companies that don't necessarily bear these characteristics.

A Side By Side comparison of Hamamatsu Photonics K.K's Earnings Growth And 4.7% ROE

On the face of it, Hamamatsu Photonics K.K's ROE is not much to talk about. Next, when compared to the average industry ROE of 8.0%, the company's ROE leaves us feeling even less enthusiastic. Thus, the low net income growth of 4.4% seen by Hamamatsu Photonics K.K over the past five years could probably be the result of the low ROE.

We then compared Hamamatsu Photonics K.K's net income growth with the industry and found that the company's growth figure is lower than the average industry growth rate of 14% in the same 5-year period, which is a bit concerning.

Earnings growth is a huge factor in stock valuation. What investors need to determine next is if the expected earnings growth, or the lack of it, is already built into the share price. Doing so will help them establish if the stock's future looks promising or ominous. Is 6965 fairly valued? This infographic on the company's intrinsic value has everything you need to know.

Is Hamamatsu Photonics K.K Using Its Retained Earnings Effectively?

Despite having a normal three-year median payout ratio of 29% (or a retention ratio of 71% over the past three years, Hamamatsu Photonics K.K has seen very little growth in earnings as we saw above. So there might be other factors at play here which could potentially be hampering growth. For example, the business has faced some headwinds.

Moreover, Hamamatsu Photonics K.K has been paying dividends for at least ten years or more suggesting that management must have perceived that the shareholders prefer dividends over earnings growth.

Summary

In total, we're a bit ambivalent about Hamamatsu Photonics K.K's performance. While the company does have a high rate of reinvestment, the low ROE means that all that reinvestment is not reaping any benefit to its investors, and moreover, its having a negative impact on the earnings growth. That being so, the latest analyst forecasts show that the company will continue to see an expansion in its earnings. 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.