SkyWorld Development Berhad's (KLSE:SKYWLD) Stock Has Been Sliding But Fundamentals Look Strong: Is The Market Wrong?
With its stock down 6.6% over the past month, it is easy to disregard SkyWorld Development Berhad (KLSE:SKYWLD). But if you pay close attention, you might gather that its strong financials could mean that the stock could potentially see an increase in value in the long-term, given how markets usually reward companies with good financial health. In this article, we decided to focus on SkyWorld Development Berhad's ROE.
Return on equity or ROE is a key measure used to assess how efficiently a company's management is utilizing the company's capital. Put another way, it reveals the company's success at turning shareholder investments into profits.
Check out our latest analysis for SkyWorld Development Berhad
How Is ROE Calculated?
The formula for ROE is:
Return on Equity = Net Profit (from continuing operations) ÷ Shareholders' Equity
So, based on the above formula, the ROE for SkyWorld Development Berhad is:
13% = RM107m ÷ RM843m (Based on the trailing twelve months to March 2024).
The 'return' is the yearly profit. Another way to think of that is that for every MYR1 worth of equity, the company was able to earn MYR0.13 in profit.
What Has ROE Got To Do With Earnings Growth?
So far, we've learned that ROE is a measure of a company's profitability. 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. Assuming all else is equal, companies that have both a higher return on equity and higher profit retention are usually the ones that have a higher growth rate when compared to companies that don't have the same features.
SkyWorld Development Berhad's Earnings Growth And 13% ROE
To begin with, SkyWorld Development Berhad seems to have a respectable ROE. Especially when compared to the industry average of 4.5% the company's ROE looks pretty impressive. This certainly adds some context to SkyWorld Development Berhad's decent 17% net income growth seen over the past five years.
As a next step, we compared SkyWorld Development Berhad's net income growth with the industry, and pleasingly, we found that the growth seen by the company is higher than the average industry growth of 11%.
The basis for attaching value to a company is, to a great extent, tied to its earnings growth. It’s important for an investor to know whether the market has priced in the company's expected earnings growth (or decline). Doing so will help them establish if the stock's future looks promising or ominous. Is SkyWorld Development Berhad fairly valued compared to other companies? These 3 valuation measures might help you decide.
Is SkyWorld Development Berhad Efficiently Re-investing Its Profits?
SkyWorld Development Berhad's three-year median payout ratio to shareholders is 8.3% (implying that it retains 92% of its income), which is on the lower side, so it seems like the management is reinvesting profits heavily to grow its business.
While SkyWorld Development Berhad has been growing its earnings, it only recently started to pay dividends which likely means that the company decided to impress new and existing shareholders with a dividend.
Summary
In total, we are pretty happy with SkyWorld Development Berhad's performance. In particular, it's great to see that the company is investing heavily into its business and along with a high rate of return, that has resulted in a sizeable growth in its earnings. That being so, a study of the latest analyst forecasts show that the company is expected to see a slowdown in its future earnings growth. To know more about the latest analysts predictions for the company, check out this visualization of analyst forecasts for the company.
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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