Autocount Dotcom Berhad's (KLSE:ADB) Stock's On An Uptrend: Are Strong Financials Guiding The Market?

Autocount Dotcom Berhad's (KLSE:ADB) stock is up by a considerable 32% 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 Autocount Dotcom Berhad's ROE today.

Return on equity or ROE is a key measure used to assess how efficiently a company's management is utilizing the company's capital. In simpler terms, it measures the profitability of a company in relation to shareholder's equity.

View our latest analysis for Autocount Dotcom Berhad

How To Calculate Return On Equity?

The formula for ROE is:

Return on Equity = Net Profit (from continuing operations) ÷ Shareholders' Equity

So, based on the above formula, the ROE for Autocount Dotcom Berhad is:

32% = RM18m ÷ RM57m (Based on the trailing twelve months to September 2024).

The 'return' is the profit over the last twelve months. Another way to think of that is that for every MYR1 worth of equity, the company was able to earn MYR0.32 in profit.

What Has ROE Got To Do With 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. 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 Autocount Dotcom Berhad's Earnings Growth And 32% ROE

First thing first, we like that Autocount Dotcom Berhad has an impressive ROE. Additionally, the company's ROE is higher compared to the industry average of 10.0% which is quite remarkable. As a result, Autocount Dotcom Berhad's exceptional 22% net income growth seen over the past five years, doesn't come as a surprise.

Next, on comparing with the industry net income growth, we found that Autocount Dotcom Berhad's growth is quite high when compared to the industry average growth of 14% in the same period, which is great to see.

Earnings growth is a huge factor in stock valuation. What investors need to determine next is if the expected earnings growth, or the lack of it, is already built into the share price. This then helps them determine if the stock is placed for a bright or bleak future. If you're wondering about Autocount Dotcom Berhad's's valuation, check out this gauge of its price-to-earnings ratio, as compared to its industry.

Is Autocount Dotcom Berhad Efficiently Re-investing Its Profits?

Autocount Dotcom Berhad's significant three-year median payout ratio of 73% (where it is retaining only 27% of its income) suggests that the company has been able to achieve a high growth in earnings despite returning most of its income to shareholders.

Along with seeing a growth in earnings, Autocount Dotcom Berhad only recently started paying dividends. Its quite possible that the company was looking to impress its shareholders.

Conclusion

On the whole, we feel that Autocount Dotcom Berhad's performance has been quite good. Especially the high ROE, Which has contributed to the impressive growth seen in earnings. Despite the company reinvesting only a small portion of its profits, it still has managed to grow its earnings so that is appreciable. Up till now, we've only made a short study of the company's growth data. To gain further insights into Autocount Dotcom Berhad's past profit growth, check out this visualization of past earnings, revenue and cash flows.

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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.