Being Holdings Co., Ltd.'s (TSE:9145) Stock Is Going Strong: Is the Market Following Fundamentals?

Most readers would already be aware that Being Holdings' (TSE:9145) stock increased significantly by 10% over the past week. Given that the market rewards strong financials in the long-term, we wonder if that is the case in this instance. In this article, we decided to focus on Being Holdings' ROE.

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 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 Being Holdings

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 Being Holdings is:

21% = JP¥1.4b ÷ JP¥7.0b (Based on the trailing twelve months to September 2024).

The 'return' is the profit 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 ¥0.21 in profit.

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. 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. 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.

Being Holdings' Earnings Growth And 21% ROE

Firstly, we acknowledge that Being Holdings has a significantly high ROE. Additionally, the company's ROE is higher compared to the industry average of 8.8% which is quite remarkable. Under the circumstances, Being Holdings' considerable five year net income growth of 20% was to be expected.

Next, on comparing with the industry net income growth, we found that Being Holdings' growth is quite high when compared to the industry average growth of 8.0% 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). Doing so will help them establish if the stock's future looks promising or ominous. One good indicator of expected earnings growth is the P/E ratio which determines the price the market is willing to pay for a stock based on its earnings prospects. So, you may want to check if Being Holdings is trading on a high P/E or a low P/E, relative to its industry.

Is Being Holdings Using Its Retained Earnings Effectively?

Being Holdings has a really low three-year median payout ratio of 16%, meaning that it has the remaining 84% left over to reinvest into its business. So it looks like Being Holdings is reinvesting profits heavily to grow its business, which shows in its earnings growth.

Besides, Being Holdings has been paying dividends over a period of four years. This shows that the company is committed to sharing profits with its shareholders.

Conclusion

In total, we are pretty happy with Being Holdings' 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. We also studied the latest analyst forecasts and found that the company's earnings growth is expected be similar to its current growth rate. 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.