KEPCO Engineering & Construction Company, Inc. (KRX:052690) Stock Has Shown Weakness Lately But Financials Look Strong: Should Prospective Shareholders Make The Leap?

It is hard to get excited after looking at KEPCO Engineering & Construction Company's (KRX:052690) recent performance, when its stock has declined 12% over the past three months. But if you pay close attention, you might gather that its strong financials could mean that the stock could potentially see an increase in value in the long-term, given how markets usually reward companies with good financial health. Specifically, we decided to study KEPCO Engineering & Construction Company's ROE in this article.

Return on equity or ROE is a key measure used to assess how efficiently a company's management is utilizing the company's capital. In short, ROE shows the profit each dollar generates with respect to its shareholder investments.

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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 KEPCO Engineering & Construction Company is:

17% = ₩99b ÷ ₩602b (Based on the trailing twelve months to June 2025).

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 ₩0.17 in profit.

Check out our latest analysis for KEPCO Engineering & Construction Company

What Has ROE Got To Do With Earnings Growth?

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

KEPCO Engineering & Construction Company's Earnings Growth And 17% ROE

To start with, KEPCO Engineering & Construction Company's ROE looks acceptable. Especially when compared to the industry average of 6.5% the company's ROE looks pretty impressive. Probably as a result of this, KEPCO Engineering & Construction Company was able to see an impressive net income growth of 39% over the last five years. We reckon that there could also be other factors at play here. For example, it is possible that the company's management has made some good strategic decisions, or that the company has a low payout ratio.

Next, on comparing with the industry net income growth, we found that KEPCO Engineering & Construction Company's growth is quite high when compared to the industry average growth of 0.07% in the same period, which is great to see.

Earnings growth is an important metric to consider when valuing a stock. 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. 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 KEPCO Engineering & Construction Company is trading on a high P/E or a low P/E, relative to its industry.

Is KEPCO Engineering & Construction Company Efficiently Re-investing Its Profits?

KEPCO Engineering & Construction Company's three-year median payout ratio is a pretty moderate 50%, meaning the company retains 50% of its income. By the looks of it, the dividend is well covered and KEPCO Engineering & Construction Company is reinvesting its profits efficiently as evidenced by its exceptional growth which we discussed above.

Moreover, KEPCO Engineering & Construction Company is determined to keep sharing its profits with shareholders which we infer from its long history of four years of paying a dividend. Upon studying the latest analysts' consensus data, we found that the company is expected to keep paying out approximately 58% of its profits over the next three years. Still, forecasts suggest that KEPCO Engineering & Construction Company's future ROE will drop to 12% even though the the company's payout ratio is not expected to change by much.

Summary

In total, we are pretty happy with KEPCO Engineering & Construction Company's 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. That being so, according to the latest industry analyst forecasts, the company's earnings are expected to shrink in the future. Are these analysts expectations based on the broad expectations for the industry, or on the company's fundamentals? Click here to be taken to our analyst's forecasts page 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.