Could The Market Be Wrong About JYP Entertainment Corporation (KOSDAQ:035900) Given Its Attractive Financial Prospects?

JYP Entertainment (KOSDAQ:035900) has had a rough three months with its share price down 25%. However, a closer look at its sound financials might cause you to think again. Given that fundamentals usually drive long-term market outcomes, the company is worth looking at. Specifically, we decided to study JYP Entertainment's ROE in this article.

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 short, ROE shows the profit each dollar generates with respect to its shareholder investments.

See our latest analysis for JYP Entertainment

How To 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 JYP Entertainment is:

23% = ₩94b ÷ ₩411b (Based on the trailing twelve months to March 2024).

The 'return' is the profit over the last twelve months. That means that for every ₩1 worth of shareholders' equity, the company generated ₩0.23 in profit.

Why Is ROE Important For Earnings Growth?

So far, we've learned that ROE is a measure of a company's profitability. 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. Generally speaking, other things being equal, firms with a high return on equity and profit retention, have a higher growth rate than firms that don’t share these attributes.

JYP Entertainment's Earnings Growth And 23% ROE

First thing first, we like that JYP Entertainment has an impressive ROE. Second, a comparison with the average ROE reported by the industry of 6.3% also doesn't go unnoticed by us. As a result, JYP Entertainment's exceptional 31% net income growth seen over the past five years, doesn't come as a surprise.

Next, on comparing with the industry net income growth, we found that JYP Entertainment's growth is quite high when compared to the industry average growth of 21% in the same period, which is great 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. This then helps them determine if the stock is placed for a bright or bleak future. What is A035900 worth today? The intrinsic value infographic in our free research report helps visualize whether A035900 is currently mispriced by the market.

Is JYP Entertainment Making Efficient Use Of Its Profits?

JYP Entertainment's ' three-year median payout ratio is on the lower side at 19% implying that it is retaining a higher percentage (81%) of its profits. This suggests that the management is reinvesting most of the profits to grow the business as evidenced by the growth seen by the company.

Besides, JYP Entertainment has been paying dividends over a period of five years. This shows that the company is committed to sharing profits with its shareholders. Our latest analyst data shows that the future payout ratio of the company over the next three years is expected to be approximately 16%. As a result, JYP Entertainment's ROE is not expected to change by much either, which we inferred from the analyst estimate of 23% for future ROE.

Summary

On the whole, we feel that JYP Entertainment's performance has been quite good. 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. With that said, the latest industry analyst forecasts reveal that the company's earnings growth is expected to slow down. 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.