Are Robust Financials Driving The Recent Rally In Greatech Technology Berhad's (KLSE:GREATEC) Stock?

Most readers would already be aware that Greatech Technology Berhad's (KLSE:GREATEC) stock increased significantly by 19% over the past three months. Given that the market rewards strong financials in the long-term, we wonder if that is the case in this instance. Particularly, we will be paying attention to Greatech Technology Berhad's ROE today.

ROE or return on equity is a useful tool to assess how effectively a company can generate returns on the investment it received from its shareholders. In simpler terms, it measures the profitability of a company in relation to shareholder's equity.

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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 Greatech Technology Berhad is:

14% = RM137m ÷ RM975m (Based on the trailing twelve months to June 2025).

The 'return' refers to a company's earnings over the last year. That means that for every MYR1 worth of shareholders' equity, the company generated MYR0.14 in profit.

View our latest analysis for Greatech Technology Berhad

What Is The Relationship Between ROE And Earnings Growth?

So far, we've learned that ROE is a measure of a company's profitability. 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.

Greatech Technology Berhad's Earnings Growth And 14% ROE

To start with, Greatech Technology Berhad's ROE looks acceptable. Further, the company's ROE compares quite favorably to the industry average of 7.5%. Probably as a result of this, Greatech Technology Berhad was able to see a decent growth of 11% over the last five years.

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

Earnings growth is a huge factor in stock valuation. 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 Greatech Technology Berhad fairly valued compared to other companies? These 3 valuation measures might help you decide.

Is Greatech Technology Berhad Making Efficient Use Of Its Profits?

Greatech Technology Berhad doesn't pay any regular dividends currently which essentially means that it has been reinvesting all of its profits into the business. This definitely contributes to the decent earnings growth number that we discussed above.

Summary

In total, we are pretty happy with Greatech Technology Berhad's performance. Particularly, we like that the company is reinvesting heavily into its business, and at a high rate of return. Unsurprisingly, this has led to an impressive earnings growth. Having said that, looking at the current analyst estimates, we found that the company's earnings are expected to gain momentum. To know more about the latest analysts predictions for the company, check out this visualization of analyst forecasts for the company.

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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.