BCM Alliance Berhad (KLSE:BCMALL) On An Uptrend: Could Fundamentals Be Driving The Stock?

BCM Alliance Berhad's (KLSE:BCMALL) stock up by 1.9% over the past three months. As most would know, long-term fundamentals have a strong correlation with market price movements, so we decided to look at the company's key financial indicators today to determine if they have any role to play in the recent price movement. Particularly, we will be paying attention to BCM Alliance 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. In simpler terms, it measures the profitability of a company in relation to shareholder's equity.

Check out our latest analysis for BCM Alliance Berhad

How Do You Calculate Return On Equity?

ROE 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 BCM Alliance Berhad is:

6.8% = RM3.8m ÷ RM56m (Based on the trailing twelve months to September 2020).

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 MYR0.07.

What Has ROE Got To Do With Earnings Growth?

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 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.

BCM Alliance Berhad's Earnings Growth And 6.8% ROE

On the face of it, BCM Alliance Berhad's ROE is not much to talk about. However, the fact that the its ROE is quite higher to the industry average of 5.4% doesn't go unnoticed by us. However, BCM Alliance Berhad has seen a flattish net income growth over the past five years, which is not saying much. Remember, the company's ROE is a bit low to begin with, just that it is higher than the industry average. Hence, this goes some way in explaining the flat earnings growth.

Next, we compared BCM Alliance Berhad's performance against the industry and found that the industry shrunk its earnings at 3.9% in the same period, which suggests that the company's earnings have been shrinking at a slower rate than its industry, This does appease the negative sentiment around the company to a certain extent.

Earnings growth is an important metric to consider when valuing a stock. The investor should try to establish if the expected growth or decline in earnings, whichever the case may be, is priced in. Doing so will help them establish if the stock's future looks promising or ominous. If you're wondering about BCM Alliance Berhad's's valuation, check out this gauge of its price-to-earnings ratio, as compared to its industry.

Is BCM Alliance Berhad Making Efficient Use Of Its Profits?

BCM Alliance Berhad's low three-year median payout ratio of 13%, (meaning the company retains87% of profits) should mean that the company is retaining most of its earnings and consequently, should see higher growth than it has reported.

Additionally, BCM Alliance Berhad has paid dividends over a period of four years, which means that the company's management is determined to pay dividends even if it means little to no earnings growth.

Conclusion

On the whole, we do feel that BCM Alliance Berhad has some positive attributes. However, while the company does have a decent ROE and a high profit retention, its earnings growth number is quite disappointing. This suggests that there might be some external threat to the business, that's hampering growth. Up till now, we've only made a short study of the company's growth data. You can do your own research on BCM Alliance Berhad and see how it has performed in the past by looking at this FREE detailed graph of past earnings, revenue and cash flows.

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This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
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