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editorial-team@simplywallst.com (Simply Wall St)
4 min read
Most readers would already be aware that Wasco Berhad’s (KLSE:WASCO) stock increased significantly by 7.4% over the past week. Since the market usually pay for a company’s long-term fundamentals, we decided to study the company’s key performance indicators to see if they could be influencing the market. Specifically, we decided to study Wasco Berhad’s ROE in this article.
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 other words, it is a profitability ratio which measures the rate of return on the capital provided by the company’s shareholders.
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 Wasco Berhad is:
18% = RM166m ÷ RM948m (Based on the trailing twelve months to December 2024).
The ‘return’ is the amount earned after tax over the last twelve months. Another way to think of that is that for every MYR1 worth of equity, the company was able to earn MYR0.18 in profit.
View our latest analysis for Wasco Berhad
So far, we’ve learned that ROE is a measure of a company’s profitability. We now need to evaluate how much profit the company reinvests or “retains” for future growth which then gives us an idea about the growth potential of the company. 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.
At first glance, Wasco Berhad seems to have a decent ROE. Further, the company’s ROE is similar to the industry average of 16%. This probably goes some way in explaining Wasco Berhad’s significant 59% net income growth over the past five years amongst other factors. However, there could also be other drivers behind this growth. For instance, the company has a low payout ratio or is being managed efficiently.
Next, on comparing with the industry net income growth, we found that Wasco Berhad’s growth is quite high when compared to the industry average growth of 29% in the same period, which is great to see.
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. Has the market priced in the future outlook for WASCO? You can find out in our latest intrinsic value infographic research report.
