MEISEI INDUSTRIAL Co.,Ltd.'s (TSE:1976) Stock's On An Uptrend: Are Strong Financials Guiding The Market?

Simply Wall St · 04/14 21:10

Most readers would already be aware that MEISEI INDUSTRIALLtd's (TSE:1976) stock increased significantly by 16% over the past week. Given that the market rewards strong financials in the long-term, we wonder if that is the case in this instance. Particularly, we will be paying attention to MEISEI INDUSTRIALLtd's ROE today.

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.

We've discovered 1 warning sign about MEISEI INDUSTRIALLtd. View them for free.

How Is ROE Calculated?

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 MEISEI INDUSTRIALLtd is:

11% = JP¥7.1b ÷ JP¥65b (Based on the trailing twelve months to December 2024).

The 'return' is the income the business earned over the last year. That means that for every ¥1 worth of shareholders' equity, the company generated ¥0.11 in profit.

View our latest analysis for MEISEI INDUSTRIALLtd

Why Is ROE Important For Earnings Growth?

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

A Side By Side comparison of MEISEI INDUSTRIALLtd's Earnings Growth And 11% ROE

At first glance, MEISEI INDUSTRIALLtd seems to have a decent ROE. On comparing with the average industry ROE of 8.3% the company's ROE looks pretty remarkable. This certainly adds some context to MEISEI INDUSTRIALLtd's decent 8.7% net income growth seen over the past five years.

We then compared MEISEI INDUSTRIALLtd's net income growth with the industry and we're pleased to see that the company's growth figure is higher when compared with the industry which has a growth rate of 1.8% in the same 5-year period.

past-earnings-growth
TSE:1976 Past Earnings Growth April 14th 2025

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 MEISEI INDUSTRIALLtd is trading on a high P/E or a low P/E, relative to its industry.

Is MEISEI INDUSTRIALLtd Making Efficient Use Of Its Profits?

MEISEI INDUSTRIALLtd has a healthy combination of a moderate three-year median payout ratio of 38% (or a retention ratio of 62%) and a respectable amount of growth in earnings as we saw above, meaning that the company has been making efficient use of its profits.

Moreover, MEISEI INDUSTRIALLtd is determined to keep sharing its profits with shareholders which we infer from its long history of paying a dividend for at least ten years.

Conclusion

On the whole, we feel that MEISEI INDUSTRIALLtd's performance has been quite good. 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. If the company continues to grow its earnings the way it has, that could have a positive impact on its share price given how earnings per share influence long-term share prices. Let's not forget, business risk is also one of the factors that affects the price of the stock. So this is also an important area that investors need to pay attention to before making a decision on any business. You can see the 1 risk we have identified for MEISEI INDUSTRIALLtd by visiting our risks dashboard for free on our platform here.