Are Robust Financials Driving The Recent Rally In My E.G. Services Berhad's (KLSE:MYEG) Stock?

My E.G. Services Berhad (KLSE:MYEG) has had a great run on the share market with its stock up by a significant 7.4% over the last month. Given that the market rewards strong financials in the long-term, we wonder if that is the case in this instance. In this article, we decided to focus on My E.G. Services 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. Simply put, it is used to assess the profitability of a company in relation to its equity capital.

View our latest analysis for My E.G. Services Berhad

How To Calculate Return On Equity?

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 My E.G. Services Berhad is:

25% = RM667m ÷ RM2.7b (Based on the trailing twelve months to September 2024).

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 MYR0.25 in profit.

What Has ROE Got To Do With Earnings Growth?

Thus far, we have learned that ROE measures how efficiently a company is generating its profits. 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 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.

My E.G. Services Berhad's Earnings Growth And 25% ROE

Firstly, we acknowledge that My E.G. Services Berhad has a significantly high ROE. Additionally, the company's ROE is higher compared to the industry average of 21% which is quite remarkable. This likely paved the way for the modest 20% net income growth seen by My E.G. Services Berhad over the past five years.

We then performed a comparison between My E.G. Services Berhad's net income growth with the industry, which revealed that the company's growth is similar to the average industry growth of 20% in the same 5-year period.

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). Doing so will help them establish if the stock's future looks promising or ominous. If you're wondering about My E.G. Services Berhad's's valuation, check out this gauge of its price-to-earnings ratio, as compared to its industry.

Is My E.G. Services Berhad Making Efficient Use Of Its Profits?

With a three-year median payout ratio of 26% (implying that the company retains 74% of its profits), it seems that My E.G. Services Berhad is reinvesting efficiently in a way that it sees respectable amount growth in its earnings and pays a dividend that's well covered.

Moreover, My E.G. Services Berhad is determined to keep sharing its profits with shareholders which we infer from its long history of paying a dividend for at least ten years. Upon studying the latest analysts' consensus data, we found that the company is expected to keep paying out approximately 26% of its profits over the next three years. Regardless, My E.G. Services Berhad's ROE is speculated to decline to 18% despite there being no anticipated change in its payout ratio.

Summary

In total, we are pretty happy with My E.G. Services Berhad's performance. In particular, it's great to see that the company is investing heavily into its business and along with a high rate of return, that has resulted in a sizeable growth in its earnings. That being so, a study of the latest analyst forecasts show that the company is expected to see a slowdown in its future earnings growth. To know more about the company's future earnings growth forecasts take a look at this free report on analyst forecasts for the company to find out more.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. 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.