Jindal Stainless Limited (NSE: JSL) shares are on an uptrend: is strong financial data driving the market?

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Jindal Stainless (NSE: JSL) has had an excellent performance in the equity market with a significant increase in its shares of 28% in the past three months. Given the company’s impressive performance, we decided to take a closer look at its financial metrics, as a company’s long-term financial health usually dictates market results. Specifically, we have decided to study the ROE of Jindal Stainless in this article.

ROE or return on equity is a useful tool to assess how effectively a company can generate the returns on investment it has received from its shareholders. In other words, it is a profitability ratio that measures the rate of return on capital contributed by the shareholders of the company.

Check out our latest review for Jindal Stainless

How to calculate return on equity?

ROE can be calculated using the formula:

Return on equity = Net income (from continuing operations) ÷ Equity

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

30% = ₹ 12b ÷ ₹ 40b (Based on the last twelve months up to September 2021).

The “return” is the income the business has earned over the past year. This means that for every 1 of equity, the company generated ₹ 0.30 in profit.

What does ROE have to do with profit growth?

So far, we’ve learned that ROE measures how efficiently a business generates profits. We now need to assess how much profit the business is reinvesting or “holding back” for future growth, which then gives us an idea of ​​the growth potential of the business. Assuming everything else remains the same, the higher the ROE and profit retention, the higher the growth rate of a business compared to businesses that don’t necessarily have these characteristics.

Jindal Stainless’ Profit growth and 30% ROE

First, we recognize that Jindal Stainless has a significantly high ROE. Second, a comparison with the industry-reported average ROE of 15% doesn’t go unnoticed for us either. Thus, the substantial 45% net income growth observed by Jindal Stainless over the past five years is not too surprising.

We then compared the net income growth of Jindal Stainless with the industry and we are delighted to see that the growth figure of the company is higher than that of the industry which has a growth rate of 14% at the during the same period.

NSEI: JSL Past Profit Growth on November 20, 2021

Profit growth is an important metric to consider when valuing a stock. What investors next need to determine is whether the expected earnings growth, or lack thereof, is already built into the share price. This then helps them determine whether the stock is set for a bright or dark future. Is Jindal Stainless properly rated against other companies? These 3 evaluation measures could help you decide.

Is Jindal Stainless Using Its Profits Effectively?

Jindal Stainless does not pay any dividends to its shareholders, which means the company has reinvested all of its profits in the business. This is probably what explains the high number of profit growth discussed above.

Conclusion

All in all, we are quite satisfied with the performance of Jindal Stainless. In particular, it is great to see that the company is investing heavily in its business and with a high rate of return, which has resulted in significant growth in its profits. However, a study of the latest analysts’ forecasts shows that the company is likely to experience a slowdown in future earnings growth. Are the expectations of these analysts based on general industry expectations or on company fundamentals? Click here to go to our business analyst forecasts page.

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

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