Edelteq Holdings Berhad's (KLSE:EDELTEQ) Stock's On An Uptrend: Are Strong Financials Guiding The Market?

Edelteq Holdings Berhad (KLSE:EDELTEQ) has had a great run on the share market with its stock up by a significant 26% over the last three months. 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 Edelteq Holdings Berhad's ROE.

Return on Equity or ROE is a test of how effectively a company is growing its value and managing investors’ money. Put another way, it reveals the company's success at turning shareholder investments into profits.

AI is about to change healthcare. These 20 stocks are working on everything from early diagnostics to drug discovery. The best part - they are all under $10bn in marketcap - there is still time to get in early.

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 Edelteq Holdings Berhad is:

17% = RM9.8m ÷ RM58m (Based on the trailing twelve months to September 2025).

The 'return' is the yearly profit. So, this means that for every MYR1 of its shareholder's investments, the company generates a profit of MYR0.17.

View our latest analysis for Edelteq Holdings Berhad

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. 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.

A Side By Side comparison of Edelteq Holdings Berhad's Earnings Growth And 17% ROE

At first glance, Edelteq Holdings Berhad seems to have a decent ROE. Further, the company's ROE compares quite favorably to the industry average of 8.2%. Despite this, Edelteq Holdings Berhad's five year net income growth was quite low averaging at only 2.2%. That's a bit unexpected from a company which has such a high rate of return. Such a scenario is likely to take place when a company pays out a huge portion of its earnings as dividends, or is faced with competitive pressures.

Next, on comparing with the industry net income growth, we found that the growth figure reported by Edelteq Holdings Berhad compares quite favourably to the industry average, which shows a decline of 10% over the last few years.

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. One good indicator of expected earnings growth is the P/E ratio which determines the price the market is willing to pay for a stock based on its earnings prospects. So, you may want to check if Edelteq Holdings Berhad is trading on a high P/E or a low P/E, relative to its industry.

Is Edelteq Holdings Berhad Making Efficient Use Of Its Profits?

A low three-year median payout ratio of 19% (implying that the company retains the remaining 81% of its income) suggests that Edelteq Holdings Berhad is retaining most of its profits. However, the low earnings growth number doesn't reflect this as high growth usually follows high profit retention. Therefore, there might be some other reasons to explain the lack in that respect. For example, the business could be in decline.

Only recently, Edelteq Holdings Berhad started paying a dividend. This means that the management might have concluded that its shareholders prefer dividends over earnings growth.

Conclusion

In total, we are pretty happy with Edelteq Holdings 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. Our risks dashboard would have the 4 risks we have identified for Edelteq Holdings Berhad.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.