Is LS ELECTRIC Co., Ltd.'s (KRX:010120) Latest Stock Performance A Reflection Of Its Financial Health?

Most readers would already be aware that LS ELECTRIC's (KRX:010120) stock increased significantly by 35% over the past month. Given the company's impressive performance, we decided to study its financial indicators more closely as a company's financial health over the long-term usually dictates market outcomes. Specifically, we decided to study LS ELECTRIC's 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. Simply put, it is used to assess the profitability of a company in relation to its equity capital.

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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 LS ELECTRIC is:

13% = ₩242b ÷ ₩1.9t (Based on the trailing twelve months to December 2024).

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 ₩0.13.

Check out our latest analysis for LS ELECTRIC

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 LS ELECTRIC's Earnings Growth And 13% ROE

At first glance, LS ELECTRIC seems to have a decent ROE. Especially when compared to the industry average of 9.0% the company's ROE looks pretty impressive. Probably as a result of this, LS ELECTRIC was able to see an impressive net income growth of 24% over the last five years. However, there could also be other causes behind this growth. Such as - high earnings retention or an efficient management in place.

We then compared LS ELECTRIC's net income growth with the industry and we're pleased to see that the company's growth figure is higher when compared with the industry which has a growth rate of 19% in the same 5-year period.

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. Has the market priced in the future outlook for A010120? You can find out in our latest intrinsic value infographic research report.

Is LS ELECTRIC Efficiently Re-investing Its Profits?

LS ELECTRIC has a three-year median payout ratio of 35% (where it is retaining 65% of its income) which is not too low or not too high. By the looks of it, the dividend is well covered and LS ELECTRIC is reinvesting its profits efficiently as evidenced by its exceptional growth which we discussed above.

Moreover, LS ELECTRIC is determined to keep sharing its profits with shareholders which we infer from its long history of six years of paying a dividend. Our latest analyst data shows that the future payout ratio of the company over the next three years is expected to be approximately 33%. However, LS ELECTRIC's ROE is predicted to rise to 18% despite there being no anticipated change in its payout ratio.

Summary

Overall, we are quite pleased with LS ELECTRIC's performance. Specifically, we like that the company is reinvesting a huge chunk of its profits at a high rate of return. This of course has caused the company to see substantial growth in its earnings. On studying current analyst estimates, we found that analysts expect the company to continue its recent growth streak. 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.