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Do Its Financials Have Any Role To Play In Driving LMW Limited's (NSE:LMW) Stock Up Recently?

Simply Wall St · 09/23/2025 01:08

LMW's (NSE:LMW) stock is up by a considerable 5.2% over the past week. We wonder if and what role the company's financials play in that price change as a company's long-term fundamentals usually dictate market outcomes. Particularly, we will be paying attention to LMW'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 simpler terms, it measures the profitability of a company in relation to shareholder's equity.

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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 LMW is:

3.7% = ₹1.0b ÷ ₹28b (Based on the trailing twelve months to June 2025).

The 'return' is the profit over the last twelve months. So, this means that for every ₹1 of its shareholder's investments, the company generates a profit of ₹0.04.

View our latest analysis for LMW

Why Is ROE Important For Earnings Growth?

Thus far, we have learned that ROE measures how efficiently a company is generating its profits. 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. 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.

A Side By Side comparison of LMW's Earnings Growth And 3.7% ROE

It is hard to argue that LMW's ROE is much good in and of itself. Not just that, even compared to the industry average of 14%, the company's ROE is entirely unremarkable. Despite this, surprisingly, LMW saw an exceptional 23% net income growth over the past five years. Therefore, there could be other reasons behind this growth. For instance, the company has a low payout ratio or is being managed efficiently.

As a next step, we compared LMW's net income growth with the industry and found that the company has a similar growth figure when compared with the industry average growth rate of 27% in the same period.

past-earnings-growth
NSEI:LMW Past Earnings Growth September 23rd 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. Doing so will help them establish if the stock's future looks promising or ominous. 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 LMW is trading on a high P/E or a low P/E, relative to its industry.

Is LMW Using Its Retained Earnings Effectively?

LMW has a three-year median payout ratio of 27% (where it is retaining 73% of its income) which is not too low or not too high. So it seems that LMW is reinvesting efficiently in a way that it sees impressive growth in its earnings (discussed above) and pays a dividend that's well covered.

Moreover, LMW 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.

Summary

In total, it does look like LMW has some positive aspects to its business. Even in spite of the low rate of return, the company has posted impressive earnings growth as a result of reinvesting heavily into its business. Having said that, looking at the current analyst estimates, we found that the company's earnings are expected to gain momentum. To know more about the latest analysts predictions for the company, check out this visualization of analyst forecasts for the company.