Are Strong Financial Prospects The Force That Is Driving The Momentum In Jindal Stainless Limited's NSE:JSL) Stock?

Jindal Stainless' (NSE:JSL) stock is up by a considerable 6.3% over the past month. 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 Jindal Stainless' 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. Put another way, it reveals the company's success at turning shareholder investments into profits.

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How Is ROE Calculated?

The formula for ROE is:

Return on Equity = Net Profit (from continuing operations) ÷ Shareholders' Equity

So, based on the above formula, the ROE for Jindal Stainless is:

15% = ₹28b ÷ ₹181b (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 ₹0.15 in profit.

See our latest analysis for Jindal Stainless

What Is The Relationship Between ROE And Earnings Growth?

Thus far, we have learned that ROE measures how efficiently a company is generating its profits. 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. 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.

Jindal Stainless' Earnings Growth And 15% ROE

To start with, Jindal Stainless' ROE looks acceptable. Further, the company's ROE compares quite favorably to the industry average of 9.7%. This probably laid the ground for Jindal Stainless' significant 26% net income growth seen over the past 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 Jindal Stainless' 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 24% in the same period.

Earnings growth is a huge factor in stock valuation. The investor should try to establish if the expected growth or decline in earnings, whichever the case may be, is priced in. By doing so, they will have an idea if the stock is headed into clear blue waters or if swampy waters await. Is Jindal Stainless fairly valued compared to other companies? These 3 valuation measures might help you decide.

Is Jindal Stainless Making Efficient Use Of Its Profits?

Jindal Stainless' ' three-year median payout ratio is on the lower side at 9.5% implying that it is retaining a higher percentage (91%) of its profits. So it looks like Jindal Stainless is reinvesting profits heavily to grow its business, which shows in its earnings growth.

Besides, Jindal Stainless has been paying dividends over a period of three years. This shows that the company is committed to sharing profits with its shareholders. Our latest analyst data shows that the future payout ratio of the company is expected to drop to 7.3% over the next three years. Despite the lower expected payout ratio, the company's ROE is not expected to change by much.

Conclusion

In total, we are pretty happy with Jindal Stainless' performance. In particular, it's great to see that the company is investing heavily into its business and along with a high rate of return, that has resulted in a sizeable growth in its earnings. 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.

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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.