Pearson plc (LON:PSON) Stock Has Shown Weakness Lately But Financials Look Strong: Should Prospective Shareholders Make The Leap?

Tue, Aug 26, 2025, 10:35 AM 3 min read

It is hard to get excited after looking at Pearson’s (LON:PSON) recent performance, when its stock has declined 7.4% over the past three months. However, stock prices are usually driven by a company’s financial performance over the long term, which in this case looks quite promising. In this article, we decided to focus on Pearson’s 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. Simply put, it is used to assess the profitability of a company in relation to its equity capital.

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The formula for ROE is:

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

So, based on the above formula, the ROE for Pearson is:

12% = UK£443m ÷ UK£3.6b (Based on the trailing twelve months to June 2025).

The ‘return’ refers to a company’s earnings over the last year. One way to conceptualize this is that for each £1 of shareholders’ capital it has, the company made £0.12 in profit.

Check out our latest analysis for Pearson

So far, we’ve learned that ROE is a measure of a company’s profitability. 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. 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.

At first glance, Pearson seems to have a decent ROE. Especially when compared to the industry average of 9.8% the company’s ROE looks pretty impressive. This probably laid the ground for Pearson’s moderate 11% net income growth seen over the past five years.

As a next step, we compared Pearson’s 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 9.2% in the same period.

Earnings growth is an important metric to consider when valuing a stock. It’s important for an investor to know whether the market has priced in the company’s expected earnings growth (or decline). By doing so, they will have an idea if the stock is headed into clear blue waters or if swampy waters await. Has the market priced in the future outlook for PSON? You can find out in our latest intrinsic value infographic research report.