Could The Market Be Wrong About BANDAI NAMCO Holdings Inc. (TSE:7832) Given Its Attractive Financial Prospects?
With its stock down 14% over the past three months, it is easy to disregard BANDAI NAMCO Holdings (TSE:7832). However, stock prices are usually driven by a company’s financial performance over the long term, which in this case looks quite promising. Particularly, we will be paying attention to BANDAI NAMCO Holdings' ROE today.
Return on equity or ROE is an important factor to be considered by a shareholder because it tells them how effectively their capital is being reinvested. Simply put, it is used to assess the profitability of a company in relation to its equity capital.
How To 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 BANDAI NAMCO Holdings is:
15% = JP¥128b ÷ JP¥842b (Based on the trailing twelve months to September 2025).
The 'return' is the profit over the last twelve months. One way to conceptualize this is that for each ¥1 of shareholders' capital it has, the company made ¥0.15 in profit.
View our latest analysis for BANDAI NAMCO Holdings
What Has ROE Got To Do With 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. 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.
BANDAI NAMCO Holdings' Earnings Growth And 15% ROE
At first glance, BANDAI NAMCO Holdings seems to have a decent ROE. Further, the company's ROE compares quite favorably to the industry average of 9.0%. This probably laid the ground for BANDAI NAMCO Holdings' moderate 18% net income growth seen over the past five years.
We then performed a comparison between BANDAI NAMCO Holdings' net income growth with the industry, which revealed that the company's growth is similar to the average industry growth of 21% 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. By doing so, they will have an idea if the stock is headed into clear blue waters or if swampy waters await. What is 7832 worth today? The intrinsic value infographic in our free research report helps visualize whether 7832 is currently mispriced by the market.
Is BANDAI NAMCO Holdings Using Its Retained Earnings Effectively?
BANDAI NAMCO Holdings has a healthy combination of a moderate three-year median payout ratio of 39% (or a retention ratio of 61%) and a respectable amount of growth in earnings as we saw above, meaning that the company has been making efficient use of its profits.
Additionally, BANDAI NAMCO Holdings has paid dividends over a period of at least ten years which means that the company is pretty serious about sharing its profits with shareholders.
Summary
In total, we are pretty happy with BANDAI NAMCO Holdings' 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. Having said that, the company's earnings growth is expected to slow down, as forecasted in the current analyst estimates. 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.