My E.G. Services Berhad (KLSE:MYEG) has had a rough three months with its share price down 13%. However, a closer look at its sound financials might cause you to think again. Given that fundamentals usually drive long-term market outcomes, the company is worth looking at. Specifically, we decided to study My E.G. Services Berhad's ROE in this article.
Return on equity or ROE is an important factor to be considered by a shareholder because it tells them how effectively their capital is being reinvested. In other words, it is a profitability ratio which measures the rate of return on the capital provided by the company's shareholders.
How Is ROE Calculated?
The formula for return on equity is:
Return on Equity = Net Profit (from continuing operations) ÷ Shareholders' Equity
So, based on the above formula, the ROE for My E.G. Services Berhad is:
24% = RM698m ÷ RM2.8b (Based on the trailing twelve months to December 2024).
The 'return' is the yearly profit. That means that for every MYR1 worth of shareholders' equity, the company generated MYR0.24 in profit.
Check out our latest analysis for My E.G. Services Berhad
What Has ROE Got To Do With Earnings Growth?
So far, we've learned that ROE is a measure of a company's profitability. 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 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.
My E.G. Services Berhad's Earnings Growth And 24% ROE
First thing first, we like that My E.G. Services Berhad has an impressive ROE. Second, a comparison with the average ROE reported by the industry of 17% also doesn't go unnoticed by us. So, the substantial 22% net income growth seen by My E.G. Services Berhad over the past five years isn't overly surprising.
We then performed a comparison between My E.G. Services Berhad's net income growth with the industry, which revealed that the company's growth is similar to the average industry growth of 22% in the same 5-year period.
Earnings growth is a huge factor in stock valuation. What investors need to determine next is if the expected earnings growth, or the lack of it, is already built into the share price. This then helps them determine if the stock is placed for a bright or bleak future. Is My E.G. Services Berhad fairly valued compared to other companies? These 3 valuation measures might help you decide.