Do Its Financials Have Any Role To Play In Driving Cloudpoint Technology Berhad's (KLSE:CLOUDPT) Stock Up Recently?

Cloudpoint Technology Berhad's (KLSE:CLOUDPT) stock is up by a considerable 18% over the past month. As most would know, fundamentals are what usually guide market price movements over the long-term, so we decided to look at the company's key financial indicators today to determine if they have any role to play in the recent price movement. In this article, we decided to focus on Cloudpoint Technology Berhad's ROE.

Return on equity or ROE is a key measure used to assess how efficiently a company's management is utilizing the company's capital. Put another way, it reveals the company's success at turning shareholder investments into profits.

Check out our latest analysis for Cloudpoint Technology Berhad

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 Cloudpoint Technology Berhad is:

24% = RM18m ÷ RM75m (Based on the trailing twelve months to June 2024).

The 'return' is the amount earned after tax over the last twelve months. One way to conceptualize this is that for each MYR1 of shareholders' capital it has, the company made MYR0.24 in profit.

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 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.

Cloudpoint Technology Berhad's Earnings Growth And 24% ROE

Firstly, we acknowledge that Cloudpoint Technology Berhad has a significantly high ROE. Additionally, the company's ROE is higher compared to the industry average of 10% which is quite remarkable. This probably laid the groundwork for Cloudpoint Technology Berhad's moderate 20% net income growth seen over the past five years.

We then compared Cloudpoint Technology Berhad's net income growth with the industry and found that the company's growth figure is lower than the average industry growth rate of 31% in the same 5-year period, which is a bit concerning.

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

Is Cloudpoint Technology Berhad Using Its Retained Earnings Effectively?

The really high three-year median payout ratio of 1,271% for Cloudpoint Technology Berhad suggests that the company is paying its shareholders more than what it is earning. Still the company's earnings have grown respectably. Although, the high payout ratio is certainly something we would keep an eye on if the company is not able to keep up its growth, or if business deteriorates. To know the 2 risks we have identified for Cloudpoint Technology Berhad visit our risks dashboard for free.

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

Summary

Overall, we feel that Cloudpoint Technology Berhad certainly does have some positive factors to consider. The company has grown its earnings moderately as a result of its impressive ROE. Yet, the business is retaining hardly any of its profits. This might have negative implications on the company's future growth. Up till now, we've only made a short study of the company's growth data. To gain further insights into Cloudpoint Technology 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.