WEBULL

Otani Kogyo Co.,Ltd.'s (TSE:5939) Stock On An Uptrend: Could Fundamentals Be Driving The Momentum?

Simply Wall St · 12/30/2025 21:30

Otani KogyoLtd (TSE:5939) has had a great run on the share market with its stock up by a significant 22% over the last month. As most would know, fundamentals are what usually guide market price movements over the long-term, so we decided to look at the company's key financial indicators today to determine if they have any role to play in the recent price movement. In this article, we decided to focus on Otani KogyoLtd'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. Simply put, it is used to assess the profitability of a company in relation to its equity capital.

We've found 21 US stocks that are forecast to pay a dividend yield of over 6% next year. See the full list 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 Otani KogyoLtd is:

6.7% = JP¥283m ÷ JP¥4.2b (Based on the trailing twelve months to September 2025).

The 'return' is the income the business earned over the last year. So, this means that for every ¥1 of its shareholder's investments, the company generates a profit of ¥0.07.

View our latest analysis for Otani KogyoLtd

Why Is ROE Important For 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.

A Side By Side comparison of Otani KogyoLtd's Earnings Growth And 6.7% ROE

When you first look at it, Otani KogyoLtd's ROE doesn't look that attractive. However, given that the company's ROE is similar to the average industry ROE of 7.7%, we may spare it some thought. Even so, Otani KogyoLtd has shown a fairly decent growth in its net income which grew at a rate of 20%. Considering the moderately low ROE, it is quite possible that there might be some other aspects that are positively influencing the company's earnings growth. For instance, the company has a low payout ratio or is being managed efficiently.

Next, on comparing with the industry net income growth, we found that Otani KogyoLtd's growth is quite high when compared to the industry average growth of 12% in the same period, which is great to see.

past-earnings-growth
TSE:5939 Past Earnings Growth December 30th 2025

Earnings growth is a huge factor in stock valuation. It’s important for an investor to know whether the market has priced in the company's expected earnings growth (or decline). Doing so will help them establish if the stock's future looks promising or ominous. If you're wondering about Otani KogyoLtd's's valuation, check out this gauge of its price-to-earnings ratio, as compared to its industry.

Is Otani KogyoLtd Making Efficient Use Of Its Profits?

Summary

Overall, we feel that Otani KogyoLtd certainly does have some positive factors to consider. 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. While we won't completely dismiss the company, what we would do, is try to ascertain how risky the business is to make a more informed decision around the company. To know the 2 risks we have identified for Otani KogyoLtd visit our risks dashboard for free.