Teladan Group Berhad (KLSE:TELADAN) Stock's Been Sliding But Fundamentals Look Decent: Will The Market Correct The Share Price In The Future?
With its stock down 9.2% over the past week, it is easy to disregard Teladan Group Berhad (KLSE:TELADAN). But if you pay close attention, you might find that its key financial indicators look quite decent, which could mean that the stock could potentially rise in the long-term given how markets usually reward more resilient long-term fundamentals. In this article, we decided to focus on Teladan Group Berhad's ROE.
ROE or return on equity is a useful tool to assess how effectively a company can generate returns on the investment it received from its shareholders. Simply put, it is used to assess the profitability of a company in relation to its equity capital.
Check out our latest analysis for Teladan 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 Teladan Group Berhad is:
5.2% = RM27m ÷ RM520m (Based on the trailing twelve months to December 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 MYR0.05.
What Is The Relationship Between ROE And Earnings Growth?
We have already established that ROE serves as an efficient profit-generating gauge for a company's future earnings. 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 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.
Teladan Group Berhad's Earnings Growth And 5.2% ROE
It is quite clear that Teladan Group Berhad's ROE is rather low. However, the fact that it is higher than the industry average of 4.1% makes us a bit more interested. Or may be not, given Teladan Group Berhad's five year net income decline of 7.6% in the past five years. Bear in mind, the company does have a low ROE. It is just that the industry ROE is lower. So that's what might be causing earnings growth to shrink.
So, as a next step, we compared Teladan Group Berhad's performance against the industry and were disappointed to discover that while the company has been shrinking its earnings, the industry has been growing its earnings at a rate of 6.5% over the last few years.