My EG Services Berhad (KLSE:MYEG) has had a great run on the stock market, with its share price increasing by a significant 20% in the past three months. Since the market typically pays for a company's long-term fundamentals, we decided to investigate whether a company's key performance indicators are influencing the market. In this article, we decided to focus on My EG Services Berhad's ROE.
Return on equity or ROE tests how effectively a company is growing its value and managing investors' money. In other words, ROE shows the profit generated per dollar of a shareholder's investment.
Check out our latest analysis for My EG Services Berhad.
How do you calculate return on equity?
ROE can be calculated using the following formula:
Return on equity = Net income (from continuing operations) ÷ Shareholders' equity
So, based on the above formula, My EG Services Berhad's ROE is:
22% = RM487m ÷ RM2.20 (Based on trailing 12 months to December 2023).
“Return” refers to a company's earnings over the past year. Another way to think of it is that for every RM1 worth of shares, the company was able to earn him RM0.22 in profit.
Why is ROE important for profit growth?
So far, we have learned that ROE is a measure of a company's profitability. We are then able to assess a company's future ability to generate profits based on how much of its profits it chooses to reinvest or “retain.” Generally speaking, other things being equal, companies with high return on equity and profit retention will have higher growth rates than companies without these attributes.
A side-by-side comparison of My EG Services Berhad's earnings growth and ROE of 22%.
At first glance, My EG Services Berhad appears to have a decent ROE. Moreover, his ROE for the company is very good compared to the industry average of 12%. Perhaps as a result of this, My EG Services Berhad has been able to grow a decent 16% over the past five years.
The next step was to compare My EG Services Berhad's net income growth with its industry. We're happy to see that the company's growth is higher than the industry average of 11%.
Earnings growth is a big factor in stock valuation. Investors should check whether expected earnings growth or decline has been factored in in any case. By doing so, you can find out if the stock is headed for clear blue waters or if a swamp awaits. Is MYEG fairly valued? This infographic on the company's intrinsic value contains everything you need to know.
Is my EG service effectively utilizing retained earnings?
My EG Services Berhad's median three-year payout ratio is 27%, which means it retains the remaining 73% of its profits. This suggests that the dividend is well covered, and given the company's healthy growth, it appears that management is reinvesting earnings efficiently.
Furthermore, My EG Services Berhad is determined to continue sharing its profits with its shareholders, as inferred from its long history of paying dividends for at least 10 years. Based on the latest analyst forecasts, we find that the company's future payout ratio over the next three years is expected to remain stable at 29%. As a result, My EG Services Berhad's ROE is also not expected to change much, which is inferred from the analyst's future ROE forecast of 18%.
summary
Overall, I am quite satisfied with the performance of My EG Services Berhad. In particular, it's great to see that the company has invested heavily in its business, delivering strong revenue growth along with high rates of return. That said, the company's revenue growth is expected to slow, according to the latest industry analyst forecasts. Learn more about the company's future revenue growth forecasts here. free Create a report on analyst forecasts to learn more about the company.
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This article by Simply Wall St is general in nature. We provide commentary using only unbiased methodologies, based on historical data and analyst forecasts, and articles are not intended to be financial advice. This is not a recommendation to buy or sell any stock, and does not take into account your objectives or financial situation. We aim to provide long-term, focused analysis based on fundamental data. Note that our analysis may not factor in the latest announcements or qualitative material from price-sensitive companies. Simply Wall St has no position in any stocks mentioned.
