Do Its Financials Have Any Role To Play In Driving ONEJOON Co., Ltd.'s (KOSDAQ:382840) Stock Up Recently?

ONEJOON (KOSDAQ:382840) has had a great run on the share market with its stock up by a significant 15% over the last week. We wonder if and what role the company's financials play in that price change as a company's long-term fundamentals usually dictate market outcomes. Particularly, we will be paying attention to ONEJOON's ROE today.

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.

Check out our latest analysis for ONEJOON

How Do You Calculate Return On Equity?

The formula for return on equity is:

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

So, based on the above formula, the ROE for ONEJOON is:

18% = ₩23b ÷ ₩127b (Based on the trailing twelve months to September 2024).

The 'return' is the income the business earned over the last year. That means that for every ₩1 worth of shareholders' equity, the company generated ₩0.18 in profit.

Why Is ROE Important For 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. 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.

ONEJOON's Earnings Growth And 18% ROE

To start with, ONEJOON's ROE looks acceptable. Especially when compared to the industry average of 7.1% the company's ROE looks pretty impressive. However, for some reason, the higher returns aren't reflected in ONEJOON's meagre five year net income growth average of 4.8%. That's a bit unexpected from a company which has such a high rate of return. A few likely reasons why this could happen is that the company could have a high payout ratio or the business has allocated capital poorly, for instance.

Next, on comparing with the industry net income growth, we found that ONEJOON's reported growth was lower than the industry growth of 18% over the last few years, which is not something we like 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. By doing so, they will have an idea if the stock is headed into clear blue waters or if swampy waters await. Is ONEJOON fairly valued compared to other companies? These 3 valuation measures might help you decide.

Is ONEJOON Using Its Retained Earnings Effectively?

While ONEJOON has a decent three-year median payout ratio of 35% (or a retention ratio of 65%), it has seen very little growth in earnings. Therefore, there might be some other reasons to explain the lack in that respect. For example, the business could be in decline.

Only recently, ONEJOON started paying a dividend. This means that the management might have concluded that its shareholders prefer dividends over earnings growth.

Summary

On the whole, we do feel that ONEJOON has some positive attributes. Although, we are disappointed to see a lack of growth in earnings even in spite of a high ROE and and a high reinvestment rate. We believe that there might be some outside factors that could be having a negative impact on the business.

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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.