Johns Lyng Group Limited’s (ASX:JLG) Stock Has Shown Weakness Lately But Financial Prospects Look Decent: Is The Market Wrong?

May 20, 2025
johns-lyng-group-limited’s-(asx:jlg)-stock-has-shown-weakness-lately-but-financial-prospects-look-decent:-is-the-market-wrong?

editorial-team@simplywallst.com (Simply Wall St)

4 min read

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With its stock down 41% over the past three months, it is easy to disregard Johns Lyng Group (ASX:JLG). However, the company’s fundamentals look pretty decent, and long-term financials are usually aligned with future market price movements. Specifically, we decided to study Johns Lyng Group’s ROE in this article.

Return on equity or ROE is a key measure used to assess how efficiently a company’s management is utilizing the company’s capital. In short, ROE shows the profit each dollar generates with respect to its shareholder investments.

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The formula for return on equity is:

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

So, based on the above formula, the ROE for Johns Lyng Group is:

11% = AU$53m ÷ AU$501m (Based on the trailing twelve months to December 2024).

The ‘return’ is the profit over the last twelve months. That means that for every A$1 worth of shareholders’ equity, the company generated A$0.11 in profit.

Check out our latest analysis for Johns Lyng Group

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 all else is equal, companies that have both a higher return on equity and higher profit retention are usually the ones that have a higher growth rate when compared to companies that don’t have the same features.

On the face of it, Johns Lyng Group’s ROE is not much to talk about. We then compared the company’s ROE to the broader industry and were disappointed to see that the ROE is lower than the industry average of 15%. In spite of this, Johns Lyng Group was able to grow its net income considerably, at a rate of 26% in the last five years. So, there might be other aspects that are positively influencing the company’s earnings growth. For instance, the company has a low payout ratio or is being managed efficiently.

Next, on comparing Johns Lyng Group’s net income growth with the industry, we found that the company’s reported growth is similar to the industry average growth rate of 26% over the last few years.

past-earnings-growth

ASX:JLG Past Earnings Growth May 19th 2025

The basis for attaching value to a company is, to a great extent, tied to its earnings growth. 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. 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 Johns Lyng Group is trading on a high P/E or a low P/E, relative to its industry.

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