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Santen Pharmaceutical Co., Ltd.'s (TSE:4536) Recent Stock Performance Looks Decent- Can Strong Fundamentals Be the Reason?

Simply Wall St · 3d ago

Santen Pharmaceutical's (TSE:4536) stock up by 6.1% over the past three months. Given its impressive performance, we decided to study the company's key financial indicators as a company's long-term fundamentals usually dictate market outcomes. Specifically, we decided to study Santen Pharmaceutical's ROE in this article.

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 simpler terms, it measures the profitability of a company in relation to shareholder's equity.

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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 Santen Pharmaceutical is:

11% = JP¥31b ÷ JP¥274b (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 ¥0.11 in profit.

See our latest analysis for Santen Pharmaceutical

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. We now need to evaluate how much profit the company reinvests or "retains" for future growth which then gives us an idea about the growth potential of the company. Assuming all else is equal, companies that have both a higher return on equity and higher profit retention are usually the ones that have a higher growth rate when compared to companies that don't have the same features.

A Side By Side comparison of Santen Pharmaceutical's Earnings Growth And 11% ROE

At first glance, Santen Pharmaceutical seems to have a decent ROE. On comparing with the average industry ROE of 6.8% the company's ROE looks pretty remarkable. Probably as a result of this, Santen Pharmaceutical was able to see an impressive net income growth of 20% over the last five years. However, there could also be other causes behind this growth. For instance, the company has a low payout ratio or is being managed efficiently.

As a next step, we compared Santen Pharmaceutical'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 7.7%.

past-earnings-growth
TSE:4536 Past Earnings Growth January 7th 2026

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). 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 Santen Pharmaceutical's's valuation, check out this gauge of its price-to-earnings ratio, as compared to its industry.

Is Santen Pharmaceutical Efficiently Re-investing Its Profits?

Santen Pharmaceutical's three-year median payout ratio is a pretty moderate 41%, meaning the company retains 59% of its income. This suggests that its dividend is well covered, and given the high growth we discussed above, it looks like Santen Pharmaceutical is reinvesting its earnings efficiently.

Besides, Santen Pharmaceutical has been paying dividends for at least ten years or more. This shows that the company is committed to sharing profits with its shareholders.

Conclusion

Overall, we are quite pleased with Santen Pharmaceutical's performance. Particularly, we like that the company is reinvesting heavily into its business, and at a high rate of return. Unsurprisingly, this has led to an impressive earnings growth. That being so, a study of the latest analyst forecasts show that the company is expected to see a slowdown in its future earnings growth. Are these analysts expectations based on the broad expectations for the industry, or on the company's fundamentals? Click here to be taken to our analyst's forecasts page for the company.