Yahoo Finance Karyon Industries Berhad's (KLSE:KARYON) Financials Are Too Obscure To Link With Current Share Price Momentum: What's In Store For the Stock?
Karyon Industries Berhad (KLSE:KARYON) has had a great run on the share market with its stock up by a significant 26% over the last month. However, we wonder if the company's inconsistent financials would have any adverse impact on the current share price momentum. Particularly, we will be paying attention to Karyon Industries 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.
Check out our latest analysis for Karyon Industries Berhad
How Do You 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 Karyon Industries Berhad is:
5.3% = RM6.4m ÷ RM120m (Based on the trailing twelve months to March 2024).
The 'return' is the profit over the last twelve months. That means that for every MYR1 worth of shareholders' equity, the company generated MYR0.05 in profit.
What Is The Relationship Between ROE And Earnings Growth?
Thus far, we have learned that ROE measures how efficiently a company is generating its profits. 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.
Karyon Industries Berhad's Earnings Growth And 5.3% ROE
It is hard to argue that Karyon Industries Berhad's ROE is much good in and of itself. Further, we noted that the company's ROE is similar to the industry average of 5.7%. Thus, the low ROE certainly provides some context to Karyon Industries Berhad's very little net income growth of 4.4% seen over the past five years.
As a next step, we compared Karyon Industries Berhad's net income growth with the industry and were disappointed to see that the company's growth is lower than the industry average growth of 7.1% in the same period.
The basis for attaching value to a company is, to a great extent, tied to its earnings growth. 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 Karyon Industries Berhad's's valuation, check out this gauge of its price-to-earnings ratio, as compared to its industry.
Is Karyon Industries Berhad Efficiently Re-investing Its Profits?
Karyon Industries Berhad has a low three-year median payout ratio of 25% (meaning, the company keeps the remaining 75% of profits) which means that the company is retaining more of its earnings. This should be reflected in its earnings growth number, but that's not the case. So there could be some other explanation in that regard. For instance, the company's business may be deteriorating.
Moreover, Karyon Industries Berhad has been paying dividends for at least ten years or more suggesting that management must have perceived that the shareholders prefer dividends over earnings growth.
Conclusion
In total, we're a bit ambivalent about Karyon Industries Berhad's performance. While the company does have a high rate of reinvestment, the low ROE means that all that reinvestment is not reaping any benefit to its investors, and moreover, its having a negative impact on the earnings growth. Wrapping up, we would proceed with caution with this company and one way of doing that would be to look at the risk profile of the business. Our risks dashboard would have the 2 risks we have identified for Karyon Industries Berhad.
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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.
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