Nova Technology Services Berhad’s (KLSE:NOVATECH) Stock Has Been Sliding But Fundamentals Look Strong: Is The Market Wrong?

Nova Technology Services Berhad (KLSE:NOVATECH) has had a rough three months with its share price down 50%. But if you pay close attention, you might gather that its strong financials could mean that the stock could potentially see an increase in value in the long-term, given how markets usually reward companies with good financial health. In this article, we decided to focus on Nova Technology Services 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. In simpler terms, it measures the profitability of a company in relation to shareholder’s equity.

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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 Nova Technology Services Berhad is:

22% = RM12m ÷ RM56m (Based on the trailing twelve months to September 2025).

The ‘return’ is the yearly profit. So, this means that for every MYR1 of its shareholder’s investments, the company generates a profit of MYR0.22.

See our latest analysis for Nova Technology Services Berhad

We have already established that ROE serves as an efficient profit-generating gauge for a company’s future earnings. 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 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.

To start with, Nova Technology Services Berhad’s ROE looks acceptable. Especially when compared to the industry average of 13% the company’s ROE looks pretty impressive. Probably as a result of this, Nova Technology Services Berhad was able to see an impressive net income growth of 68% over the last five years. We reckon that there could also be other factors at play here. For instance, the company has a low payout ratio or is being managed efficiently.

As a next step, we compared Nova Technology Services 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 5.3%.