Is Korea Electric Power Industrial Development Co., Ltd's (KRX:130660) Recent Stock Performance Influenced By Its Fundamentals In Any Way?

Most readers would already be aware that Korea Electric Power Industrial Development's (KRX:130660) stock increased significantly by 54% over the past three months. 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. Specifically, we decided to study Korea Electric Power Industrial Development'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.

See our latest analysis for Korea Electric Power Industrial Development

How Do You Calculate Return On Equity?

The formula for ROE is:

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

So, based on the above formula, the ROE for Korea Electric Power Industrial Development is:

18% = ₩18b ÷ ₩100b (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 ₩0.18 in profit.

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. 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.

A Side By Side comparison of Korea Electric Power Industrial Development's Earnings Growth And 18% ROE

At first glance, Korea Electric Power Industrial Development seems to have a decent ROE. On comparing with the average industry ROE of 8.7% the company's ROE looks pretty remarkable. Given the circumstances, we can't help but wonder why Korea Electric Power Industrial Development saw little to no growth in the past five years. Therefore, there could be some other aspects that could potentially be preventing the company from growing. These include low earnings retention or poor allocation of capital.

As a next step, we compared Korea Electric Power Industrial Development's net income growth with the industry and discovered that the industry saw an average growth of 3.1% in the same 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. This then helps them determine if the stock is placed for a bright or bleak future. Is Korea Electric Power Industrial Development fairly valued compared to other companies? These 3 valuation measures might help you decide.

Is Korea Electric Power Industrial Development Making Efficient Use Of Its Profits?

The high three-year median payout ratio of 53% (meaning, the company retains only 47% of profits) for Korea Electric Power Industrial Development suggests that the company's earnings growth was miniscule as a result of paying out a majority of its earnings.

In addition, Korea Electric Power Industrial Development has been paying dividends over a period of five years suggesting that keeping up dividend payments is way more important to the management even if it comes at the cost of business growth.

Summary

Overall, we feel that Korea Electric Power Industrial Development certainly does have some positive factors to consider. However, while the company does have a high ROE, its earnings growth number is quite disappointing. This can be blamed on the fact that it reinvests only a small portion of its profits and pays out the rest as dividends. Up till now, we've only made a short study of the company's growth data. So it may be worth checking this free detailed graph of Korea Electric Power Industrial Development's past earnings, as well as revenue and cash flows to get a deeper insight into the company's performance.

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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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com