editorial-team@simplywallst.com (Simply Wall St)
4 min read
Kerjaya Prospek Group Berhad (KLSE:KERJAYA) has had a rough three months with its share price down 4.7%. However, stock prices are usually driven by a company’s financials over the long term, which in this case look pretty respectable. Particularly, we will be paying attention to Kerjaya Prospek Group Berhad’s ROE today.
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.
The formula for ROE is:
Return on Equity = Net Profit (from continuing operations) ÷ Shareholders’ Equity
So, based on the above formula, the ROE for Kerjaya Prospek Group Berhad is:
14% = RM160m ÷ RM1.1b (Based on the trailing twelve months to December 2024).
The ‘return’ is the income the business earned over the last year. That means that for every MYR1 worth of shareholders’ equity, the company generated MYR0.14 in profit.
See our latest analysis for Kerjaya Prospek Group Berhad
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.
At first glance, Kerjaya Prospek Group Berhad seems to have a decent ROE. On comparing with the average industry ROE of 8.5% the company’s ROE looks pretty remarkable. This certainly adds some context to Kerjaya Prospek Group Berhad’s decent 7.0% net income growth seen over the past five years.
As a next step, we compared Kerjaya Prospek Group Berhad’s net income growth with the industry and were disappointed to see that the company’s growth is lower than the industry average growth of 15% in the same 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. 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 Kerjaya Prospek Group Berhad is trading on a high P/E or a low P/E, relative to its industry.
