Are Strong Financial Prospects The Force That Is Driving The Momentum In ePlus inc.'s NASDAQ:PLUS) Stock?

ePlus' (NASDAQ:PLUS) stock is up by a considerable 20% over the past three months. Given that the market rewards strong financials in the long-term, we wonder if that is the case in this instance. In this article, we decided to focus on ePlus' ROE.

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 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 Is ROE Calculated?

ROE 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 ePlus is:

12% = US$129m ÷ US$1.0b (Based on the trailing twelve months to September 2025).

The 'return' is the yearly profit. That means that for every $1 worth of shareholders' equity, the company generated $0.12 in profit.

View our latest analysis for ePlus

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. 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 ePlus' Earnings Growth And 12% ROE

To begin with, ePlus seems to have a respectable ROE. Further, the company's ROE is similar to the industry average of 10%. Consequently, this likely laid the ground for the decent growth of 7.7% seen over the past five years by ePlus.

As a next step, we compared ePlus' 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 9.4% in the same period.

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 ePlus is trading on a high P/E or a low P/E, relative to its industry.

Is ePlus Making Efficient Use Of Its Profits?

In ePlus' case, its respectable earnings growth can probably be explained by its low three-year median payout ratio of 5.1% (or a retention ratio of 95%), which suggests that the company is investing most of its profits to grow its business.

Conclusion

On the whole, we feel that ePlus' performance has been quite good. Specifically, we like that the company is reinvesting a huge chunk of its profits at a high rate of return. This of course has caused the company to see substantial growth in its earnings. That being so, according to the latest industry analyst forecasts, the company's earnings are expected to shrink in the future. To know more about the company's future earnings growth forecasts take a look at this free report on analyst forecasts for the company to find out more.

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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.