Is Peet Limited’s (ASX:PPC) Recent Stock Performance Influenced By Its Financials In Any Way?

Most readers would already know that Peet’s (ASX:PPC) stock increased by 8.5% over the past three months. Given that stock prices are usually aligned with a company’s financial performance in the long-term, we decided to investigate if the company’s decent financials had a hand to play in the recent price move. In this article, we decided to focus on Peet’s ROE.

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 other words, it is a profitability ratio which measures the rate of return on the capital provided by the company’s shareholders.

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ROE can be calculated by using the formula:

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

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

9.5% = AU$59m ÷ AU$621m (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 A$1 of shareholders’ capital it has, the company made A$0.09 in profit.

View our latest analysis for Peet

We have already established that ROE serves as an efficient profit-generating gauge for a company’s future earnings. 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. 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.

On the face of it, Peet’s ROE is not much to talk about. However, the fact that the its ROE is quite higher to the industry average of 5.8% doesn’t go unnoticed by us. Even more so after seeing Peet’s exceptional 31% net income growth over the past five years. Bear in mind, the company does have a moderately low ROE. It is just that the industry ROE is lower. Hence, there might be some other aspects that are causing earnings to grow. Such as- high earnings retention or the company belonging to a high growth industry.

We then compared Peet’s net income growth with the industry and we’re pleased to see that the company’s growth figure is higher when compared with the industry which has a growth rate of 17% in the same 5-year 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. This then helps them determine if the stock is placed for a bright or bleak future. 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 Peet is trading on a high P/E or a low P/E, relative to its industry.

Peet has a significant three-year median payout ratio of 55%, meaning the company only retains 45% of its income. This implies that the company has been able to achieve high earnings growth despite returning most of its profits to shareholders.

Additionally, Peet has paid dividends over a period of at least ten years which means that the company is pretty serious about sharing its profits with shareholders.

On the whole, we do feel that Peet has some positive attributes. Specifically, its respectable ROE which likely led to the considerable growth in earnings. Yet, the company is retaining a small portion of its profits. Which means that the company has been able to grow its earnings in spite of it, so that’s not too bad. Until now, we have only just grazed the surface of the company’s past performance by looking at the company’s fundamentals. To gain further insights into Peet’s past profit growth, check out this visualization of past earnings, revenue and cash flows.

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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.