Is Asia Media Group Berhad's (KLSE:AMEDIA) Stock's Recent Performance Being Led By Its Attractive Financial Prospects?

By
Simply Wall St
Published
February 22, 2022
KLSE:AMEDIA
Source: Shutterstock

Asia Media Group Berhad's (KLSE:AMEDIA) stock is up by a considerable 14% over the past month. 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. In this article, we decided to focus on Asia Media Group Berhad's ROE.

Return on equity or ROE is an important factor to be considered by a shareholder because it tells them how effectively their capital is being reinvested. In simpler terms, it measures the profitability of a company in relation to shareholder's equity.

See our latest analysis for Asia Media Group 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 Asia Media Group Berhad is:

52% = RM4.3m ÷ RM8.3m (Based on the trailing twelve months to December 2021).

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 MYR0.52.

What Is The Relationship Between ROE And Earnings Growth?

So far, we've learned that ROE is a measure of a company's profitability. Depending on how much of these profits the company reinvests or "retains", and how effectively it does so, we are then able to assess a company’s earnings growth potential. Generally speaking, other things being equal, firms with a high return on equity and profit retention, have a higher growth rate than firms that don’t share these attributes.

A Side By Side comparison of Asia Media Group Berhad's Earnings Growth And 52% ROE

Firstly, we acknowledge that Asia Media Group Berhad has a significantly high ROE. Secondly, even when compared to the industry average of 9.5% the company's ROE is quite impressive. Under the circumstances, Asia Media Group Berhad's considerable five year net income growth of 24% was to be expected.

We then compared Asia Media Group Berhad's net income growth with the industry and we're pleased to see that the company's growth figure is higher when compared with the industry which has a growth rate of 13% in the same period.

past-earnings-growth
KLSE:AMEDIA Past Earnings Growth February 22nd 2022

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. This then helps them determine if the stock is placed for a bright or bleak future. Is Asia Media Group Berhad fairly valued compared to other companies? These 3 valuation measures might help you decide.

Is Asia Media Group Berhad Efficiently Re-investing Its Profits?

Asia Media Group Berhad doesn't pay any dividend currently which essentially means that it has been reinvesting all of its profits into the business. This definitely contributes to the high earnings growth number that we discussed above.

Conclusion

Overall, we are quite pleased with Asia Media Group Berhad's performance. Specifically, we like that the company is reinvesting a huge chunk of its profits at a high rate of return. This of course has caused the company to see substantial growth in its earnings. If the company continues to grow its earnings the way it has, that could have a positive impact on its share price given how earnings per share influence long-term share prices. Remember, the price of a stock is also dependent on the perceived risk. Therefore investors must keep themselves informed about the risks involved before investing in any company. You can see the 3 risks we have identified for Asia Media Group Berhad by visiting our risks dashboard for free on our platform here.

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