Can Mixed Fundamentals Have A Negative Impact on Vivocom Intl Holdings Berhad (KLSE:VIVOCOM) Current Share Price Momentum?

Most readers would already be aware that Vivocom Intl Holdings Berhad's (KLSE:VIVOCOM) stock increased significantly by 6.3% over the past month. However, we wonder if the company's inconsistent financials would have any adverse impact on the current share price momentum. In this article, we decided to focus on Vivocom Intl Holdings Berhad's ROE.

Return on equity or ROE is a key measure used to assess how efficiently a company's management is utilizing the company's capital. In other words, it is a profitability ratio which measures the rate of return on the capital provided by the company's shareholders.

Check out our latest analysis for Vivocom Intl Holdings Berhad

How Is ROE Calculated?

Return on equity 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 Vivocom Intl Holdings Berhad is:

1.4% = RM6.8m ÷ RM471m (Based on the trailing twelve months to June 2020).

The 'return' is the profit 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 MYR0.01 in profit.

What Is The Relationship Between ROE And 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 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.

A Side By Side comparison of Vivocom Intl Holdings Berhad's Earnings Growth And 1.4% ROE

It is quite clear that Vivocom Intl Holdings Berhad's ROE is rather low. Even compared to the average industry ROE of 4.4%, the company's ROE is quite dismal. For this reason, Vivocom Intl Holdings Berhad's five year net income decline of 49% is not surprising given its lower ROE. We believe that there also might be other aspects that are negatively influencing the company's earnings prospects. For instance, the company has a very high payout ratio, or is faced with competitive pressures.

As a next step, we compared Vivocom Intl Holdings Berhad's performance with the industry and found thatVivocom Intl Holdings Berhad's performance is depressing even when compared with the industry, which has shrunk its earnings at a rate of 6.1% in the same period, which is a slower than the company.

Earnings growth is an important metric to consider when valuing a stock. It’s important for an investor to know whether the market has priced in the company's expected earnings growth (or decline). By doing so, they will have an idea if the stock is headed into clear blue waters or if swampy waters await. Is Vivocom Intl Holdings Berhad fairly valued compared to other companies? These 3 valuation measures might help you decide.

Is Vivocom Intl Holdings Berhad Efficiently Re-investing Its Profits?

Conclusion

Overall, we have mixed feelings about Vivocom Intl Holdings Berhad. While the company does have a high rate of reinvestment, the low ROE means that all that reinvestment is not reaping any benefit to its investors, and moreover, its having a negative impact on the earnings growth. Wrapping up, we would proceed with caution with this company and one way of doing that would be to look at the risk profile of the business. You can see the 1 risk we have identified for Vivocom Intl Holdings Berhad by visiting our risks dashboard for free on our platform here.

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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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