Is Complete Logistic Services Berhad's (KLSE:COMPLET) Latest Stock Performance A Reflection Of Its Financial Health?

Complete Logistic Services Berhad's (KLSE:COMPLET) stock is up by a considerable 94% over the past three months. Given the company's impressive performance, we decided to study its financial indicators more closely as a company's financial health over the long-term usually dictates market outcomes. Particularly, we will be paying attention to Complete Logistic Services Berhad's ROE today.

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.

See our latest analysis for Complete Logistic Services Berhad

How To Calculate Return On Equity?

The formula for return on equity is:

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

So, based on the above formula, the ROE for Complete Logistic Services Berhad is:

27% = RM44m ÷ RM161m (Based on the trailing twelve months to September 2020).

The 'return' is the yearly profit. So, this means that for every MYR1 of its shareholder's investments, the company generates a profit of MYR0.27.

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.

A Side By Side comparison of Complete Logistic Services Berhad's Earnings Growth And 27% ROE

First thing first, we like that Complete Logistic Services Berhad has an impressive ROE. Secondly, even when compared to the industry average of 6.7% the company's ROE is quite impressive. Under the circumstances, Complete Logistic Services Berhad's considerable five year net income growth of 33% was to be expected.

When you consider the fact that the industry earnings have shrunk at a rate of 1.0% in the same period, the company's net income growth is pretty remarkable.

Earnings growth is an important metric to consider when valuing a stock. 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 Complete Logistic Services Berhad's's valuation, check out this gauge of its price-to-earnings ratio, as compared to its industry.

Is Complete Logistic Services Berhad Efficiently Re-investing Its Profits?

The three-year median payout ratio for Complete Logistic Services Berhad is 46%, which is moderately low. The company is retaining the remaining 54%. By the looks of it, the dividend is well covered and Complete Logistic Services Berhad is reinvesting its profits efficiently as evidenced by its exceptional growth which we discussed above.

Besides, Complete Logistic Services Berhad has been paying dividends for at least ten years or more. This shows that the company is committed to sharing profits with its shareholders.

Conclusion

Overall, we are quite pleased with Complete Logistic Services 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. If the company continues to grow its earnings the way it has, that could have a positive impact on its share price given how earnings per share influence long-term share prices. Not to forget, share price outcomes are also dependent on the potential risks a company may face. So it is important for investors to be aware of the risks involved in the business. You can see the 4 risks we have identified for Complete Logistic Services Berhad by visiting our risks dashboard for free on our platform here.

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This article by Simply Wall St is general in nature. 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.
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