ITMAX System Berhad's (KLSE:ITMAX) share price has increased by a significant 21% over the past three months. Given that the market rewards strong financials in the long run, I wonder if that will be the case this time as well. This time, we decided to focus on ITMAX System Berhad's ROE.
Return on equity or ROE tests how effectively a company is growing its value and managing investors' money. In other words, it is a profitability ratio that measures the rate of return on the capital provided by a company's shareholders.
Check out our latest analysis for ITMAX System Berhad.
How is ROE calculated?
of ROE calculation formula teeth:
Return on equity = Net income (from continuing operations) ÷ Shareholders' equity
So, based on the above formula, ITMAX System Berhad's ROE is:
18% = RM59m ÷ RM326m (based on subsequent 12 months to September 2023).
“Return” is the annual profit. Another way to think of it is that for every RM1 worth of shares, the company was able to earn him RM0.18 in profit.
What relationship does ROE have with profit growth?
So far, we have learned that ROE measures how efficiently a company is generating its profits. We are then able to evaluate a company's future ability to generate profits based on how much of its profits it chooses to reinvest or “retain”. Generally, other things being equal, companies with high return on equity and profit retention will have higher growth rates than companies without these attributes.
ITMAX System Berhad's Revenue Growth and ROE 18%
To begin with, ITMAX System Berhad seems to have a fairly high ROE. Moreover, his ROE for the company is very good compared to the industry average of 12%. This certainly gives some context to the exceptional 45% growth in ITMAX System Berhad's net profit over the past five years. We believe that other factors may also be at play here. Maintaining high profits and efficient management, etc.
As a next step, we compared ITMAX System Berhad's net income growth with its industry. We're pleased to note that the company's growth rate is higher than the industry average growth rate of 22%.
Earnings growth is an important metric to consider when evaluating a stock. It's important for investors to know whether the market is pricing in a company's expected earnings growth (or decline). Doing so will help you determine whether a stock's future is promising or ominous. 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 outlook. So you may want to check whether ITMAX System Berhad is trading on a higher or lower P/E ratio compared to its industry.
Is ITMAX System Berhad's retained earnings effectively utilized?
ITMAX System Berhad's median three-year dividend payout ratio is lower at 1.9%, meaning it retains a higher percentage of its profits (98%). Therefore, it appears that management is reinvesting profits heavily to grow the business, which is reflected in the earnings growth numbers.
ITMAX System Berhad has been growing its earnings, but it only recently started paying a dividend. The company most likely decided to impress new and existing shareholders with the dividend. Researching the latest analyst consensus data, we found that the company's future dividend payout ratio is expected to rise to 20% over the next three years. In any case, ITMAX System Berhad's future ROE is estimated to rise to 22%, despite the expected increase in the dividend payout ratio. There are likely other factors driving ROE growth in the future.
conclusion
Overall, I'm quite satisfied with the performance of ITMAX System Berhad. Specifically, we like that the company reinvests a huge amount of its profits at a high rate of return. Of course, this significantly increased the company's revenue. That said, the company's revenue growth is expected to slow, according to the latest industry analyst forecasts. Learn more about the company's future revenue growth forecasts here. free Create a report on analyst forecasts to learn more about the company.
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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts using only unbiased methodologies, and articles are not intended to be financial advice. This is not a recommendation to buy or sell any stock, and does not take into account your objectives or financial situation. We aim to provide long-term, focused analysis based on fundamental data. Note that our analysis may not factor in the latest announcements or qualitative material from price-sensitive companies. Simply Wall St has no position in any stocks mentioned.
