Is Lincoln Electric Holdings, Inc.’s (NASDAQ:LECO) Stock’s Recent Performance A Reflection Of Its Financial Health?

Lincoln Electric Holdings’ (NASDAQ:LECO) stock is up by 4.1% over the past three months. Since the market usually pay for a company’s long-term financial health, we decided to study the company’s fundamentals to see if they could be influencing the market. Particularly, we will be paying attention to Lincoln Electric Holdings’ ROE today.

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 simpler terms, it measures the profitability of a company in relation to shareholder’s equity.

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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 Lincoln Electric Holdings is:

37% = US$525m ÷ US$1.4b (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 $0.37 in profit.

Check out our latest analysis for Lincoln Electric Holdings

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

First thing first, we like that Lincoln Electric Holdings has an impressive ROE. Additionally, the company’s ROE is higher compared to the industry average of 11% which is quite remarkable. This likely paved the way for the modest 17% net income growth seen by Lincoln Electric Holdings over the past five years.

We then performed a comparison between Lincoln Electric Holdings’ net income growth with the industry, which revealed that the company’s growth is similar to the average industry growth of 16% in the same 5-year period.

The basis for attaching value to a company is, to a great extent, tied to its earnings growth. What investors need to determine next is if the expected earnings growth, or the lack of it, is already built into the share price. 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 Lincoln Electric Holdings is trading on a high P/E or a low P/E, relative to its industry.

With a three-year median payout ratio of 30% (implying that the company retains 70% of its profits), it seems that Lincoln Electric Holdings is reinvesting efficiently in a way that it sees respectable amount growth in its earnings and pays a dividend that’s well covered.

Besides, Lincoln Electric Holdings has been paying dividends for at least ten years or more. This shows that the company is committed to sharing profits with its shareholders. Upon studying the latest analysts’ consensus data, we found that the company is expected to keep paying out approximately 25% of its profits over the next three years. Therefore, the company’s future ROE is also not expected to change by much with analysts predicting an ROE of 39%.

In total, we are pretty happy with Lincoln Electric Holdings’ performance. Specifically, we like that the company is reinvesting a huge chunk of its profits at a high rate of return. This of course has caused the company to see substantial growth in its earnings. Having said that, the company’s earnings growth is expected to slow down, as forecasted in the current analyst estimates. To know more about the latest analysts predictions for the company, check out this visualization of analyst forecasts 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.