June 22, 2024
Finance

Is Samaiden Group Berhad’s (KLSE:SAMAIDEN) Stock’s Recent Performance A Reflection Of Its Financial Health?


Samaiden Group Berhad’s (KLSE:SAMAIDEN) stock up by 9.2% 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. Specifically, we decided to study Samaiden Group 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. Put another way, it reveals the company’s success at turning shareholder investments into profits.

Check out our latest analysis for Samaiden Group Berhad

How To Calculate Return On Equity?

Return on equity 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 Samaiden Group Berhad is:

9.3% = RM11m ÷ RM113m (Based on the trailing twelve months to September 2023).

The ‘return’ is the income the business earned over the last year. One way to conceptualize this is that for each MYR1 of shareholders’ capital it has, the company made MYR0.09 in profit.

What Is The Relationship Between ROE And Earnings Growth?

So far, we’ve learned that ROE is a measure of a company’s profitability. 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 everything else remains unchanged, the higher the ROE and profit retention, the higher the growth rate of a company compared to companies that don’t necessarily bear these characteristics.

Samaiden Group Berhad’s Earnings Growth And 9.3% ROE

When you first look at it, Samaiden Group Berhad’s ROE doesn’t look that attractive. Although a closer study shows that the company’s ROE is higher than the industry average of 7.1% which we definitely can’t overlook. Consequently, this likely laid the ground for the decent growth of 13% seen over the past five years by Samaiden Group Berhad. Bear in mind, the company does have a moderately low ROE. It is just that the industry ROE is lower. Therefore, the growth in earnings could also be the result of other factors. For example, it is possible that the broader industry is going through a high growth phase, or that the company has a low payout ratio.

As a next step, we compared Samaiden Group Berhad’s net income growth with the industry, and pleasingly, we found that the growth seen by the company is higher than the average industry growth of 2.5%.

past-earnings-growth

past-earnings-growth

The basis for attaching value to a company is, to a great extent, tied to its earnings growth. The investor should try to establish if the expected growth or decline in earnings, whichever the case may be, is priced in. This then helps them determine if the stock is placed for a bright or bleak future. 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 Samaiden Group Berhad is trading on a high P/E or a low P/E, relative to its industry.

Is Samaiden Group Berhad Efficiently Re-investing Its Profits?

In Samaiden Group Berhad’s case, its respectable earnings growth can probably be explained by its low three-year median payout ratio of 19% (or a retention ratio of 81%), which suggests that the company is investing most of its profits to grow its business.

Our latest analyst data shows that the future payout ratio of the company over the next three years is expected to be approximately 19%. Still, forecasts suggest that Samaiden Group Berhad’s future ROE will rise to 18% even though the the company’s payout ratio is not expected to change by much.

Conclusion

Overall, we are quite pleased with Samaiden Group Berhad’s performance. Specifically, we like that it has been reinvesting a high portion of its profits at a moderate rate of return, resulting in earnings expansion. Having said that, looking at the current analyst estimates, we found that the company’s earnings are expected to gain momentum. To know more about the company’s future earnings growth forecasts take a look at this free report on analyst forecasts for the company to find out more.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.



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