It’s difficult to find enthusiasm regarding VSTECS Berhad’s (KLSE:VSTECS) recent performance, especially as its stock has fallen by 8.4% in the last three months. Nonetheless, examining its strong financials may prompt you to reconsider. Since fundamentals often determine long-term market performance, it’s worth taking a closer look at the company. In particular, we will focus on VSTECS Berhad’s ROE today.
Return on Equity (ROE) is a valuable metric for evaluating how well a company can produce profits from the capital invested by its shareholders. In essence, ROE indicates the profit generated for each dollar invested by shareholders.
Check out our latest analysis for VSTECS Berhad
The formula for calculating ROE is:
Return on Equity = Net Profit (from continuing operations) ÷ Shareholders’ Equity
Thus, applying the above formula, the ROE for VSTECS Berhad stands at:
15% = RM73m ÷ RM491m (Calculated based on the trailing twelve months to September 2024).
The ‘return’ represents the profit earned over the past year. To visualize this, for every MYR1 of shareholders’ equity, the company has generated MYR0.15 in profit.
So far, we’ve established that ROE is an indicator of a company’s profitability. Depending on how much profit the company decides to reinvest or “retain,” we can assess its potential future profit generation. Generally, all else being equal, companies with higher ROE and profit retention rates tend to experience faster growth compared to those that lack these characteristics.
At first glance, VSTECS Berhad appears to showcase a respectable ROE. Its ROE is particularly impressive compared to the industry average of 10%. As a consequence of this strong performance, VSTECS Berhad has enjoyed a notable growth rate of 18% over the past five years.
Furthermore, in relation to the industry’s net income growth, VSTECS Berhad’s growth rate surpasses the industry average of 14% during the same timeframe, which is a positive indicator.
Earnings growth plays a crucial role in stock valuation. Investors should determine whether the anticipated increase or decrease in earnings is already incorporated into the stock price. This analysis can provide insights into whether the stock is navigating toward favorable conditions or facing challenges ahead. How does VSTECS Berhad’s valuation compare to other firms? These three valuation measures might assist in your assessment.
