Is Kumpulan Jetson Berhad's (KLSE:JETSON) Recent Stock Performance Tethered To Its Strong Fundamentals?
Kumpulan Jetson Berhad (KLSE:JETSON) has had a great run on the share market with its stock up by a significant 13% over the last month. Since the market usually pay for a company’s long-term fundamentals, we decided to study the company’s key performance indicators to see if they could be influencing the market. In this article, we decided to focus on Kumpulan Jetson 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. In short, ROE shows the profit each dollar generates with respect to its shareholder investments.
See our latest analysis for Kumpulan Jetson Berhad
How Do You Calculate Return On Equity?
ROE 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 Kumpulan Jetson Berhad is:
18% = RM9.3m ÷ RM51m (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 MYR0.18 in profit.
What Has ROE Got To Do With Earnings Growth?
Thus far, we have learned that ROE measures how efficiently a company is generating its profits. Depending on how much of these profits the company reinvests or "retains", and how effectively it does so, we are then able to assess a company’s earnings growth potential. 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.
A Side By Side comparison of Kumpulan Jetson Berhad's Earnings Growth And 18% ROE
To start with, Kumpulan Jetson Berhad's ROE looks acceptable. Further, the company's ROE compares quite favorably to the industry average of 6.7%. Probably as a result of this, Kumpulan Jetson Berhad was able to see a decent growth of 18% over the last five years.
As a next step, we compared Kumpulan Jetson 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 25% in the same period.
Earnings growth is a huge factor in stock valuation. The investor should try to establish if the expected growth or decline in earnings, whichever the case may be, is priced in. By doing so, they will have an idea if the stock is headed into clear blue waters or if swampy waters await. 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 Kumpulan Jetson Berhad is trading on a high P/E or a low P/E, relative to its industry.
Is Kumpulan Jetson Berhad Using Its Retained Earnings Effectively?
Kumpulan Jetson Berhad doesn't pay any regular dividends, meaning that all of its profits are being reinvested in the business, which explains the fair bit of earnings growth the company has seen.
Summary
Overall, we are quite pleased with Kumpulan Jetson Berhad's performance. Particularly, we like that the company is reinvesting heavily into its business, and at a high rate of return. As a result, the decent growth in its earnings is not surprising. 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. To know the 4 risks we have identified for Kumpulan Jetson Berhad visit our risks dashboard for free.
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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.