Infoline Tec Group Berhad (KLSE:INFOTEC) Stock Has Shown Weakness Lately But Financials Look Strong: Should Prospective Shareholders Make The Leap?

With its stock down 20% over the past month, it is easy to disregard Infoline Tec Group Berhad (KLSE:INFOTEC). However, a closer look at its sound financials might cause you to think again. Given that fundamentals usually drive long-term market outcomes, the company is worth looking at. In this article, we decided to focus on Infoline Tec Group Berhad's ROE.

Return on equity or ROE is an important factor to be considered by a shareholder because it tells them how effectively their capital is being reinvested. In short, ROE shows the profit each dollar generates with respect to its shareholder investments.

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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 Infoline Tec Group Berhad is:

19% = RM11m ÷ RM61m (Based on the trailing twelve months to March 2025).

The 'return' refers to a company's earnings over the last year. One way to conceptualize this is that for each MYR1 of shareholders' capital it has, the company made MYR0.19 in profit.

View our latest analysis for Infoline Tec Group Berhad

Why Is ROE Important For 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 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.

Infoline Tec Group Berhad's Earnings Growth And 19% ROE

At first glance, Infoline Tec Group Berhad seems to have a decent ROE. On comparing with the average industry ROE of 12% the company's ROE looks pretty remarkable. This certainly adds some context to Infoline Tec Group Berhad's exceptional 22% net income growth seen over the past five years. However, there could also be other causes behind this growth. For instance, the company has a low payout ratio or is being managed efficiently.

Next, on comparing Infoline Tec Group Berhad's net income growth with the industry, we found that the company's reported growth is similar to the industry average growth rate of 23% 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. Doing so will help them establish if the stock's future looks promising or ominous. What is INFOTEC worth today? The intrinsic value infographic in our free research report helps visualize whether INFOTEC is currently mispriced by the market.

Is Infoline Tec Group Berhad Making Efficient Use Of Its Profits?

Infoline Tec Group Berhad's significant three-year median payout ratio of 54% (where it is retaining only 46% 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.

Moreover, Infoline Tec Group Berhad is determined to keep sharing its profits with shareholders which we infer from its long history of three years of paying a dividend.

Conclusion

In total, we are pretty happy with Infoline Tec Group Berhad's performance. In particular, its high ROE is quite noteworthy and also the probable explanation behind its considerable earnings growth. Yet, the company is retaining a small portion of its profits. Which means that the company has been able to grow its earnings in spite of it, so that's not too bad. Until now, we have only just grazed the surface of the company's past performance by looking at the company's fundamentals. To gain further insights into Infoline Tec Group 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.