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Kenon Holdings Ltd.'s (TLV:KEN) Stock Is Going Strong: Have Financials A Role To Play?

Simply Wall St · 5d ago

Kenon Holdings' (TLV:KEN) stock is up by a considerable 42% over the past three months. Given that stock prices are usually aligned with a company's financial performance in the long-term, we decided to study its financial indicators more closely to see if they had a hand to play in the recent price move. Specifically, we decided to study Kenon Holdings' ROE in this article.

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?

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 Kenon Holdings is:

19% = US$563m ÷ US$2.9b (Based on the trailing twelve months to September 2025).

The 'return' is the income the business earned over the last year. One way to conceptualize this is that for each ₪1 of shareholders' capital it has, the company made ₪0.19 in profit.

Check out our latest analysis for Kenon Holdings

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. 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.

Kenon Holdings' Earnings Growth And 19% ROE

To start with, Kenon Holdings' ROE looks acceptable. Especially when compared to the industry average of 7.6% the company's ROE looks pretty impressive. Needless to say, we are quite surprised to see that Kenon Holdings' net income shrunk at a rate of 20% over the past five years. Therefore, there might be some other aspects that could explain this. Such as, the company pays out a huge portion of its earnings as dividends, or is faced with competitive pressures.

That being said, we compared Kenon Holdings' 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 33% in the same 5-year period.

past-earnings-growth
TASE:KEN Past Earnings Growth January 4th 2026

The basis for attaching value to a company is, to a great extent, tied to its earnings growth. 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. 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 Kenon Holdings is trading on a high P/E or a low P/E, relative to its industry.

Is Kenon Holdings Using Its Retained Earnings Effectively?

Kenon Holdings' low three-year median payout ratio of 9.3% (or a retention ratio of 91%) over the last three years should mean that the company is retaining most of its earnings to fuel its growth but the company's earnings have actually shrunk. This typically shouldn't be the case when a company is retaining most of its earnings. So there could be some other explanations in that regard. For example, the company's business may be deteriorating.

Moreover, Kenon Holdings has been paying dividends for seven years, which is a considerable amount of time, suggesting that management must have perceived that the shareholders prefer consistent dividends even though earnings have been shrinking.

Conclusion

Overall, we feel that Kenon Holdings certainly does have some positive factors to consider. Yet, the low earnings growth is a bit concerning, especially given that the company has a high rate of return and is reinvesting ma huge portion of its profits. By the looks of it, there could be some other factors, not necessarily in control of the business, that's preventing growth. 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 Kenon Holdings visit our risks dashboard for free.