Is Atrium Real Estate Investment Trust's (KLSE:ATRIUM) Recent Stock Performance Influenced By Its Fundamentals In Any Way?

By
Simply Wall St
Published
May 27, 2021
KLSE:ATRIUM
Source: Shutterstock

Atrium Real Estate Investment Trust (KLSE:ATRIUM) has had a great run on the share market with its stock up by a significant 13% over the last three months. We wonder if and what role the company's financials play in that price change as a company's long-term fundamentals usually dictate market outcomes. Specifically, we decided to study Atrium Real Estate Investment Trust's ROE in this article.

Return on Equity or ROE is a test of how effectively a company is growing its value and managing investors’ money. In short, ROE shows the profit each dollar generates with respect to its shareholder investments.

View our latest analysis for Atrium Real Estate Investment Trust

How Do You 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 Atrium Real Estate Investment Trust is:

8.4% = RM22m ÷ RM266m (Based on the trailing twelve months to March 2021).

The 'return' is the income the business earned over the last year. Another way to think of that is that for every MYR1 worth of equity, the company was able to earn MYR0.08 in profit.

What Has ROE Got To Do With Earnings Growth?

We have already established that ROE serves as an efficient profit-generating gauge for a company's future earnings. 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. 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.

Atrium Real Estate Investment Trust's Earnings Growth And 8.4% ROE

When you first look at it, Atrium Real Estate Investment Trust's ROE doesn't look that attractive. However, the fact that the its ROE is quite higher to the industry average of 3.4% doesn't go unnoticed by us. This probably goes some way in explaining Atrium Real Estate Investment Trust's moderate 7.3% growth over the past five years amongst other factors. Bear in mind, the company does have a moderately low ROE. It is just that the industry ROE is lower. Therefore, the growth in earnings could also be the result of other factors. E.g the company has a low payout ratio or could belong to a high growth industry.

Given that the industry shrunk its earnings at a rate of 11% in the same period, the net income growth of the company is quite impressive.

past-earnings-growth
KLSE:ATRIUM Past Earnings Growth May 27th 2021

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 Atrium Real Estate Investment Trust's's valuation, check out this gauge of its price-to-earnings ratio, as compared to its industry.

Is Atrium Real Estate Investment Trust Using Its Retained Earnings Effectively?

Atrium Real Estate Investment Trust seems to be paying out most of its income as dividends judging by its three-year median payout ratio of 62%, meaning the company retains only 38% of its income. However, this is typical for REITs as they are often required by law to distribute most of their earnings. Despite this, the company's earnings grew moderately as we saw above.

Moreover, Atrium Real Estate Investment Trust 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.

Conclusion

On the whole, we do feel that Atrium Real Estate Investment Trust has some positive attributes. Specifically, its respectable ROE which likely led to the considerable growth in earnings. Yet, the company is retaining a small portion of its profits. Which means that the company has been able to grow its earnings in spite of it, so that's not too bad. So far, we've only made a quick discussion around the company's earnings growth. To gain further insights into Atrium Real Estate Investment Trust's past profit growth, check out this visualization of past earnings, revenue and cash flows.

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