Yahoo Finance Has DynaFront Holdings Berhad's (KLSE:DYNAFNT) Impressive Stock Performance Got Anything to Do With Its Fundamentals?
DynaFront Holdings Berhad (KLSE:DYNAFNT) has had a great run on the share market with its stock up by a significant 5.6% over the last month. We wonder if and what role the company's financials play in that price change as a company's long-term fundamentals usually dictate market outcomes. In this article, we decided to focus on DynaFront Holdings 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. Simply put, it is used to assess the profitability of a company in relation to its equity capital.
Check out our latest analysis for DynaFront Holdings 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 DynaFront Holdings Berhad is:
10% = RM2.1m ÷ RM21m (Based on the trailing twelve months to December 2023).
The 'return' is the income the business earned over the last year. One way to conceptualize this is that for each MYR1 of shareholders' capital it has, the company made MYR0.10 in profit.
Why Is ROE Important For 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.
DynaFront Holdings Berhad's Earnings Growth And 10% ROE
On the face of it, DynaFront Holdings Berhad's ROE is not much to talk about. Although a closer study shows that the company's ROE is higher than the industry average of 8.4% which we definitely can't overlook. Particularly, the substantial 21% net income growth seen by DynaFront Holdings Berhad over the past five years is impressive . That being said, the company does have a slightly low ROE to begin with, just that it is higher than the industry average. So, there might well be other reasons for the earnings to grow. E.g the company has a low payout ratio or could belong to a high growth industry.
We then compared DynaFront Holdings Berhad's net income growth with the industry and we're pleased to see that the company's growth figure is higher when compared with the industry which has a growth rate of 13% in the same 5-year period.
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). This then helps them determine if the stock is placed for a bright or bleak future. One good indicator of expected earnings growth is the P/E ratio which determines the price the market is willing to pay for a stock based on its earnings prospects. So, you may want to check if DynaFront Holdings Berhad is trading on a high P/E or a low P/E, relative to its industry.
Is DynaFront Holdings Berhad Efficiently Re-investing Its Profits?
The high three-year median payout ratio of 58% (implying that it keeps only 42% of profits) for DynaFront Holdings Berhad suggests that the company's growth wasn't really hampered despite it returning most of the earnings to its shareholders.
Along with seeing a growth in earnings, DynaFront Holdings Berhad only recently started paying dividends. Its quite possible that the company was looking to impress its shareholders.
Conclusion
On the whole, we do feel that DynaFront Holdings Berhad has some positive attributes. Specifically, its respectable ROE which likely led to the considerable growth in earnings. 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. You can do your own research on DynaFront Holdings Berhad and see how it has performed in the past by looking at this FREE detailed graph 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.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com
