AME Elite Consortium Berhad (KLSE:AME) has had a great run on the share market with its stock up by a significant 12% over the last three months. Given that the market rewards strong financials in the long-term, we wonder if that is the case in this instance. Specifically, we decided to study AME Elite Consortium Berhad’s ROE in this article.
Return on Equity or ROE is a test of how effectively a company is growing its value and managing investors’ money. In short, ROE shows the profit each dollar generates with respect to its shareholder investments.
View our latest analysis for AME Elite Consortium Berhad
How Is ROE Calculated?
The formula for ROE is:
Return on Equity = Net Profit (from continuing operations) ÷ Shareholders’ Equity
So, based on the above formula, the ROE for AME Elite Consortium Berhad is:
12% = RM136m ÷ RM1.2b (Based on the trailing twelve months to September 2023).
The ‘return’ is the amount earned after tax over the last twelve months. So, this means that for every MYR1 of its shareholder’s investments, the company generates a profit of MYR0.12.
What Is The Relationship Between ROE And Earnings Growth?
Thus far, we have learned that ROE measures how efficiently a company is generating its profits. Based on how much of its profits the company chooses to reinvest or “retain”, we are then able to evaluate a company’s future ability to generate profits. 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.
A Side By Side comparison of AME Elite Consortium Berhad’s Earnings Growth And 12% ROE
At first glance, AME Elite Consortium Berhad seems to have a decent ROE. Especially when compared to the industry average of 6.8% the company’s ROE looks pretty impressive. Probably as a result of this, AME Elite Consortium Berhad was able to see a decent growth of 15% over the last five years.
We then compared AME Elite Consortium Berhad’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 2.5% in the same 5-year period.
Earnings growth is an important metric to consider when valuing a stock. What investors need to determine next is if the expected earnings growth, or the lack of it, is already built into the share price. By doing so, they will have an idea if the stock is headed into clear blue waters or if swampy waters await. Is AME Elite Consortium Berhad fairly valued compared to other companies? These 3 valuation measures might help you decide.
Is AME Elite Consortium Berhad Using Its Retained Earnings Effectively?
With a three-year median payout ratio of 31% (implying that the company retains 69% of its profits), it seems that AME Elite Consortium Berhad is reinvesting efficiently in a way that it sees respectable amount growth in its earnings and pays a dividend that’s well covered.
Additionally, AME Elite Consortium Berhad has paid dividends over a period of three years which means that the company is pretty serious about sharing its profits with shareholders. Upon studying the latest analysts’ consensus data, we found that the company is expected to keep paying out approximately 30% of its profits over the next three years. Regardless, AME Elite Consortium Berhad’s ROE is speculated to decline to 8.8% despite there being no anticipated change in its payout ratio.
Conclusion
Overall, we are quite pleased with AME Elite Consortium Berhad’s 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. That being so, a study of the latest analyst forecasts show that the company is expected to see a slowdown in its future earnings growth. 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.
