Can Mixed Financials Have A Negative Impact on Inari Amertron Berhad's 's (KLSE:INARI) Current Price Momentum?

Inari Amertron Berhad's (KLSE:INARI) stock up by 6.3% over the past three months. However, we decided to study the company's mixed-bag of fundamentals to assess what this could mean for future share prices, as stock prices tend to be aligned with a company's long-term financial performance. In this article, we decided to focus on Inari Amertron Berhad's ROE.

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?

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 Inari Amertron Berhad is:

7.0% = RM218m ÷ RM3.1b (Based on the trailing twelve months to March 2025).

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 MYR0.07 in profit.

Check out our latest analysis for Inari Amertron Berhad

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. 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 Inari Amertron Berhad's Earnings Growth And 7.0% ROE

On the face of it, Inari Amertron Berhad's ROE is not much to talk about. Yet, a closer study shows that the company's ROE is similar to the industry average of 6.8%. On the other hand, Inari Amertron Berhad reported a fairly low 3.3% net income growth over the past five years. Remember, the company's ROE is not particularly great to begin with. So this could also be one of the reasons behind the company's low growth in earnings.

Given that the industry shrunk its earnings at a rate of 11% over the last few years, the net income growth of the company is quite impressive.

The basis for attaching value to a company is, to a great extent, tied to its earnings growth. What investors need to determine next is if the expected earnings growth, or the lack of it, is already built into the share price. Doing so will help them establish if the stock's future looks promising or ominous. Is Inari Amertron Berhad fairly valued compared to other companies? These 3 valuation measures might help you decide.

Is Inari Amertron Berhad Using Its Retained Earnings Effectively?

With a high three-year median payout ratio of 96% (or a retention ratio of 3.9%), most of Inari Amertron Berhad's profits are being paid to shareholders. This definitely contributes to the low earnings growth seen by the company.

In addition, Inari Amertron Berhad has been paying dividends over a period of at least ten years suggesting that keeping up dividend payments is way more important to the management even if it comes at the cost of business growth. Our latest analyst data shows that the future payout ratio of the company over the next three years is expected to be approximately 98%. Regardless, the future ROE for Inari Amertron Berhad is predicted to rise to 14% despite there being not much change expected in its payout ratio.

Conclusion

On the whole, we feel that the performance shown by Inari Amertron Berhad can be open to many interpretations. While no doubt its earnings growth is pretty substantial, its ROE and earnings retention is quite poor. So while the company has managed to grow its earnings in spite of this, we are unconvinced if this growth could extend, especially during troubled times. 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 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.