Selan Exploration Technology Limited's (NSE:SELAN) Stock Is Going Strong: Is the Market Following Fundamentals?

Simply Wall St · 06/10 00:18

Selan Exploration Technology (NSE:SELAN) has had a great run on the share market with its stock up by a significant 32% over the last month. Given the company's impressive performance, we decided to study its financial indicators more closely as a company's financial health over the long-term usually dictates market outcomes. Particularly, we will be paying attention to Selan Exploration Technology's ROE today.

Return on Equity or ROE is a test of how effectively a company is growing its value and managing investors’ money. In other words, it is a profitability ratio which measures the rate of return on the capital provided by the company's shareholders.

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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 Selan Exploration Technology is:

16% = ₹740m ÷ ₹4.7b (Based on the trailing twelve months to March 2025).

The 'return' is the yearly profit. That means that for every ₹1 worth of shareholders' equity, the company generated ₹0.16 in profit.

See our latest analysis for Selan Exploration Technology

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. Based on how much of its profits the company chooses to reinvest or "retain", we are then able to evaluate a company's future ability to generate profits. Assuming everything else remains unchanged, the higher the ROE and profit retention, the higher the growth rate of a company compared to companies that don't necessarily bear these characteristics.

Selan Exploration Technology's Earnings Growth And 16% ROE

At first glance, Selan Exploration Technology seems to have a decent ROE. Especially when compared to the industry average of 13% the company's ROE looks pretty impressive. Probably as a result of this, Selan Exploration Technology was able to see an impressive net income growth of 43% over the last five years. We reckon that there could also be other factors at play here. Such as - high earnings retention or an efficient management in place.

As a next step, we compared Selan Exploration Technology's net income growth with the industry, and pleasingly, we found that the growth seen by the company is higher than the average industry growth of 25%.

past-earnings-growth
NSEI:SELAN Past Earnings Growth June 10th 2025

Earnings growth is an important metric to consider when valuing a stock. 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. If you're wondering about Selan Exploration Technology's's valuation, check out this gauge of its price-to-earnings ratio, as compared to its industry.

Is Selan Exploration Technology Efficiently Re-investing Its Profits?

Given that Selan Exploration Technology doesn't pay any regular dividends to its shareholders, we infer that the company has been reinvesting all of its profits to grow its business.

Summary

In total, we are pretty happy with Selan Exploration Technology's 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.