Is Weakness In PharmaResearch Co., Ltd. (KOSDAQ:214450) Stock A Sign That The Market Could be Wrong Given Its Strong Financial Prospects?

With its stock down 27% over the past three months, it is easy to disregard PharmaResearch (KOSDAQ:214450). However, stock prices are usually driven by a company’s financial performance over the long term, which in this case looks quite promising. In this article, we decided to focus on PharmaResearch's ROE.

Return on equity or ROE is an important factor to be considered by a shareholder because it tells them how effectively their capital is being reinvested. In other words, it is a profitability ratio which measures the rate of return on the capital provided by the company's shareholders.

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How Do You 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 PharmaResearch is:

21% = ₩145b ÷ ₩689b (Based on the trailing twelve months to September 2025).

The 'return' refers to a company's earnings over the last year. That means that for every ₩1 worth of shareholders' equity, the company generated ₩0.21 in profit.

See our latest analysis for PharmaResearch

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 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.

PharmaResearch's Earnings Growth And 21% ROE

To begin with, PharmaResearch seems to have a respectable ROE. Especially when compared to the industry average of 6.8% the company's ROE looks pretty impressive. Probably as a result of this, PharmaResearch was able to see an impressive net income growth of 30% over the last five years. We reckon that there could also be other factors at play here. Such as - high earnings retention or an efficient management in place.

Next, on comparing with the industry net income growth, we found that PharmaResearch's growth is quite high when compared to the industry average growth of 23% in the same period, which is great to see.

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. Is PharmaResearch fairly valued compared to other companies? These 3 valuation measures might help you decide.

Is PharmaResearch Using Its Retained Earnings Effectively?

PharmaResearch's three-year median payout ratio to shareholders is 12%, which is quite low. This implies that the company is retaining 88% of its profits. This suggests that the management is reinvesting most of the profits to grow the business as evidenced by the growth seen by the company.

Additionally, PharmaResearch has paid dividends over a period of nine years which means that the company is pretty serious about sharing its profits with shareholders. Our latest analyst data shows that the future payout ratio of the company is expected to drop to 7.8% over the next three years. The fact that the company's ROE is expected to rise to 29% over the same period is explained by the drop in the payout ratio.

Summary

Overall, we are quite pleased with PharmaResearch'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. On studying current analyst estimates, we found that analysts expect the company to continue its recent growth streak. 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.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.