Me2on Co., Ltd. (KOSDAQ:201490) Stock Is Going Strong But Fundamentals Look Uncertain: What Lies Ahead ?

Simply Wall St · 07/02 00:35

Me2on (KOSDAQ:201490) has had a great run on the share market with its stock up by a significant 200% over the last three months. However, we decided to pay attention to the company's fundamentals which don't appear to give a clear sign about the company's financial health. In this article, we decided to focus on Me2on's ROE.

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.

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How Is ROE Calculated?

The formula for ROE is:

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

So, based on the above formula, the ROE for Me2on is:

1.6% = ₩3.9b ÷ ₩237b (Based on the trailing twelve months to March 2025).

The 'return' refers to a company's earnings over the last year. One way to conceptualize this is that for each ₩1 of shareholders' capital it has, the company made ₩0.02 in profit.

View our latest analysis for Me2on

What Is The Relationship Between ROE And Earnings Growth?

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

Me2on's Earnings Growth And 1.6% ROE

As you can see, Me2on's ROE looks pretty weak. Even compared to the average industry ROE of 7.0%, the company's ROE is quite dismal. Therefore, it might not be wrong to say that the five year net income decline of 21% seen by Me2on was possibly a result of it having a lower ROE. We believe that there also might be other aspects that are negatively influencing the company's earnings prospects. For instance, the company has a very high payout ratio, or is faced with competitive pressures.

That being said, we compared Me2on's performance with the industry and were concerned when we found that while the company has shrunk its earnings, the industry has grown its earnings at a rate of 48% in the same 5-year period.

past-earnings-growth
KOSDAQ:A201490 Past Earnings Growth July 2nd 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). This then helps them determine if the stock is placed for a bright or bleak future. Is Me2on fairly valued compared to other companies? These 3 valuation measures might help you decide.

Is Me2on Efficiently Re-investing Its Profits?

Me2on doesn't pay any regular dividends, meaning that the company is keeping all of its profits, which makes us wonder why it is retaining its earnings if it can't use them to grow its business. So there might be other factors at play here which could potentially be hampering growth. For example, the business has faced some headwinds.

Conclusion

Overall, we have mixed feelings about Me2on. While the company does have a high rate of profit retention, its low rate of return is probably hampering its earnings growth. Wrapping up, we would proceed with caution with this company and one way of doing that would be to look at the risk profile of the business. You can see the 4 risks we have identified for Me2on by visiting our risks dashboard for free on our platform here.