It’s hard to get excited after looking at the recent performance of Genetec Technology Berhad (KLSE:GENETEC), when its shares fell 10% over the last week. But if you pay close attention, you can deduce that its strong financials could mean that the stock could see an increase in value over the long term, since the markets tend to reward companies with good financial health. Specifically, we decided to study the ROE of Genetec Technology Berhad in this article.
ROE or return on equity is a useful tool for evaluating how effectively a company can generate returns on the investment it received from its shareholders. Put another way, it reveals the company’s success in turning shareholders’ investments into profits.
See our latest review of Genetec Technology Berhad
How is ROE calculated?
the formula for return on capital it is:
Return on equity = Net income (from continuing operations) ÷ Stockholders’ equity
So, based on the above formula, Genetec Technology Berhad’s ROE is:
38% = RM69 million ÷ RM179 million (based on the last twelve months to June 2022).
‘Yield’ refers to a company’s earnings over the last year. Another way to think about it is that for every MYR1 worth of capital, the company was able to make MYR0.38 in profit.
What does ROE have to do with earnings growth?
So far, we have learned that ROE measures how efficiently a company generates its profits. Based on how much of your earnings the company chooses to reinvest or “retain,” we can assess a company’s future ability to generate profits. Assuming all else remains unchanged, the higher ROE and earnings retention, the higher a company’s growth rate compared to companies that don’t necessarily have these characteristics.
A side-by-side comparison of Genetec Technology Berhad’s earnings growth and 38% ROE
First things first, we like that Genetec Technology Berhad has an impressive ROE. Second, even when compared to the industry average of 14%, the company’s ROE is quite impressive. As a result, Genetec Technology Berhad’s exceptional 65% net income growth seen over the last five years is no surprise.
We then compare Genetec Technology Berhad’s net income growth to the industry and are pleased to see that the company’s growth figure is higher compared to the industry which has a 12% growth rate in the same period.
The basis for giving value to a company is, to a large extent, linked to the growth of its profits. What investors need to determine next is whether the expected earnings growth, or lack thereof, is already built into the share price. By doing so, they will have an idea of whether the stock is heading towards clear blue waters or if marshy waters await. Has the market assessed GENETEC’s future prospects? You can find out in our latest intrinsic value infographic research report.
Is Genetec Technology Berhad efficiently reinvesting its profits?
Although the company paid a portion of its dividend in the past, it does not currently pay a dividend. This is likely what is driving the high earnings growth number discussed above.
Overall, we are very pleased with Genetec Technology Berhad’s performance. In particular, we like that the company is reinvesting heavily in its business and with a high rate of return. Unsurprisingly, this has led to impressive earnings growth. Having said that, the company’s earnings growth is expected to slow, as forecast in current analyst estimates. To learn more about the company’s future earnings growth forecasts, take a look at this free report on the company’s analyst forecasts for more information.
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This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts using only unbiased methodology and our articles are not intended as financial advice. It is not a recommendation to buy or sell any stock, and it does not take into account your goals or financial situation. Our goal is to provide you with long-term focused analysis driven by fundamental data. Please note that our analysis may not take into account the latest announcements from price-sensitive companies or qualitative material. Simply Wall St has no position in any of the stocks mentioned.
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