Will Weakness in OBIC Co.,Ltd.'s (TSE:4684) Stock Prove Temporary Given Strong Fundamentals?
With its stock down 7.0% over the past three months, it is easy to disregard OBICLtd (TSE:4684). 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. In this article, we decided to focus on OBICLtd's ROE.
Return on equity or ROE is a key measure used to assess how efficiently a company's management is utilizing the company's capital. Put another way, it reveals the company's success at turning shareholder investments into profits.
How Do You Calculate Return On Equity?
ROE 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 OBICLtd is:
14% = JP¥70b ÷ JP¥487b (Based on the trailing twelve months to September 2025).
The 'return' is the yearly profit. So, this means that for every ¥1 of its shareholder's investments, the company generates a profit of ¥0.14.
Check out our latest analysis for OBICLtd
What Is The Relationship Between ROE And Earnings Growth?
So far, we've learned that ROE is a measure of a company's profitability. Depending on how much of these profits the company reinvests or "retains", and how effectively it does so, we are then able to assess a company’s earnings growth potential. Assuming all else is equal, companies that have both a higher return on equity and higher profit retention are usually the ones that have a higher growth rate when compared to companies that don't have the same features.
OBICLtd's Earnings Growth And 14% ROE
To begin with, OBICLtd seems to have a respectable ROE. Even when compared to the industry average of 14% the company's ROE looks quite decent. This certainly adds some context to OBICLtd's moderate 14% net income growth seen over the past five years.
Next, on comparing OBICLtd's net income growth with the industry, we found that the company's reported growth is similar to the industry average growth rate of 12% over the last few years.
Earnings growth is a huge factor in stock valuation. 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. If you're wondering about OBICLtd's's valuation, check out this gauge of its price-to-earnings ratio, as compared to its industry.
Is OBICLtd Efficiently Re-investing Its Profits?
OBICLtd has a three-year median payout ratio of 45%, which implies that it retains the remaining 55% of its profits. This suggests that its dividend is well covered, and given the decent growth seen by the company, it looks like management is reinvesting its earnings efficiently.
Besides, OBICLtd has been paying dividends for at least ten years or more. This shows that the company is committed to sharing profits with its shareholders.
Conclusion
Overall, we are quite pleased with OBICLtd's performance. Particularly, we like that the company is reinvesting heavily into its business, and at a high rate of return. Unsurprisingly, this has led to an impressive earnings growth. With that said, the latest industry analyst forecasts reveal that the company's earnings growth is expected to slow down. 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.