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華爾街日報SAKURASAKU PLUS,Co.,Ltd.'s (TSE:7097) Stock Is Going Strong: Have Financials A Role To Play?
SAKURASAKU PLUSCo.Ltd (TSE:7097) has had a great run on the share market with its stock up by a significant 28% over the last 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 SAKURASAKU PLUSCo.Ltd's ROE in this article.
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 simpler terms, it measures the profitability of a company in relation to shareholder's equity.
How To 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 SAKURASAKU PLUSCo.Ltd is:
12% = JP¥731m ÷ JP¥6.0b (Based on the trailing twelve months to October 2025).
The 'return' is the income the business earned over the last year. That means that for every ¥1 worth of shareholders' equity, the company generated ¥0.12 in profit.
View our latest analysis for SAKURASAKU PLUSCo.Ltd
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. 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.
SAKURASAKU PLUSCo.Ltd's Earnings Growth And 12% ROE
To begin with, SAKURASAKU PLUSCo.Ltd seems to have a respectable ROE. Even when compared to the industry average of 12% the company's ROE looks quite decent. However, while SAKURASAKU PLUSCo.Ltd has a pretty respectable ROE, its five year net income decline rate was 8.6% . We reckon that there could be some other factors at play here that are preventing the company's growth. For example, it could be that the company has a high payout ratio or the business has allocated capital poorly, for instance.
That being said, we compared SAKURASAKU PLUSCo.Ltd's 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 21% in the same 5-year period.
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. This then helps them determine if the stock is placed for a bright or bleak future. If you're wondering about SAKURASAKU PLUSCo.Ltd's's valuation, check out this gauge of its price-to-earnings ratio, as compared to its industry.
Is SAKURASAKU PLUSCo.Ltd Efficiently Re-investing Its Profits?
SAKURASAKU PLUSCo.Ltd's low three-year median payout ratio of 15% (implying that it retains the remaining 85% of its profits) comes as a surprise when you pair it with the shrinking earnings. 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.
Additionally, SAKURASAKU PLUSCo.Ltd has paid dividends over a period of four years, which means that the company's management is rather focused on keeping up its dividend payments, regardless of the shrinking earnings.
Conclusion
On the whole, we do feel that SAKURASAKU PLUSCo.Ltd has some positive attributes. However, given the high ROE and high profit retention, we would expect the company to be delivering strong earnings growth, but that isn't the case here. This suggests that there might be some external threat to the business, that's hampering its 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. Our risks dashboard would have the 3 risks we have identified for SAKURASAKU PLUSCo.Ltd.
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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.