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Do your financials have any role to play in driving Visdynamics Holdings Berhad (KLSE:VIS) stock recently?
Most readers will already know that Visdynamics Holdings Berhad (KLSE:VIS) shares rose significantly by 6.5% last month. Given that stock prices are typically aligned with a company’s long-term financial performance, we decided to study its financial indicators more closely to see if they played a role in recent price developments. Specifically, we decided to study Visdynamics Holdings Berhad’s ROE in this article.
Return on equity or ROE is a fundamental measure used to evaluate how efficiently a company’s management is utilizing the company’s capital. In short, ROE shows the profit that each dollar generates in relation to its shareholders’ investments.
See our latest analysis for Visdynamics Holdings Berhad
How do you calculate return on equity?
Return on equity can be calculated using the formula:
Return on Equity = Net Profit (from continuing operations) ÷ Equity
Therefore, based on the above formula, Visdynamics Holdings Berhad’s ROE is:
7.0% = RM4.6 million ÷ RM67 million (Based on trailing twelve months to January 2024).
The ‘return’ is the amount earned after tax over the last twelve months. This means that for every MYR1 of equity, the company generated MYR0.07 of profit.
What does ROE have to do with earnings growth?
So 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 can then assess a company’s future ability to generate profits. Assuming everything else is equal, companies that have a higher return on equity and higher profit retention are generally those that have a higher growth rate when compared to companies that do not have the same characteristics.
Visdynamics Holdings Berhad earnings growth and ROE of 7.0%
At first glance, Visdynamics Holdings Berhad’s ROE doesn’t look very promising. However, a closer study shows that the company’s ROE is similar to the industry average of 7.0%. That said, Visdynamics Holdings Berhad has delivered modest net profit growth of 7.1% over the past five years. Considering the moderately low ROE, it is quite possible that there are some other aspects that are positively influencing the company’s earnings growth. Such as – high profit retention or efficient management implemented.
As a next step, we compared Visdynamics Holdings Berhad’s net profit growth to the industry and were disappointed to see that the company’s growth is lower than the industry average growth of 13% over the same period.
The story continues
past profit growth
The basis for adding value to a company is, to a large extent, linked to the growth of its profits. It is important for an investor to know whether the market has priced in the expected growth (or decline) in the company’s earnings. By doing so, they will have an idea of whether the stock is headed for clear blue waters or if swampy waters await. Is Visdynamics Holdings Berhad fairly valued compared to other companies? Those 3 assessment measures can help you decide.
Is Visdynamics Holdings Berhad reinvesting its profits efficiently?
Visdynamics Holdings Berhad has a healthy combination of a moderate three-year median payout ratio of 27% (or a retention ratio of 73%) and respectable earnings growth, as we saw above, which means the company has been making efficient use of your profits.
Furthermore, Visdynamics Holdings Berhad has been paying dividends over a period of seven years. This shows that the company is committed to sharing profits with its shareholders.
Conclusion
Overall, we feel that Visdynamics Holdings Berhad certainly has some positive factors to consider. In other words, decent earnings growth supported by a high reinvestment rate. However, we feel this earnings growth could have been higher if the business had improved its low ROE rate. Especially considering how the company is reinvesting a large part of its profits. While we wouldn’t completely discount the company, what we would do is try to check how risky the business is to make a more informed decision around the company. You can see the 2 risks we identified for Visdynamics Holdings Berhad by visiting our risk panel for free on our platform here.
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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 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 into account your objectives or your financial situation. Our goal is to bring you long-term focused analysis driven by fundamental data. Please note that our analysis may not take into account the latest price-sensitive company announcements or qualitative materials. Simply Wall St has no position in any of the stocks mentioned.