Is V.S. Industry Berhad's (KLSE:VS) Stock Price Struggling As A Result Of Its Mixed Financials?
With its stock down 29% over the past three months, it is easy to disregard V.S. Industry Berhad (KLSE:VS). It is possible that the markets have ignored the company's differing financials and decided to lean-in to the negative sentiment. Fundamentals usually dictate market outcomes so it makes sense to study the company's financials. In this article, we decided to focus on V.S. Industry Berhad's ROE.
Return on Equity or ROE is a test of how effectively a company is growing its value and managing investors' money. In short, ROE shows the profit each dollar generates with respect to its shareholder investments.
We've discovered 2 warning signs about V.S. Industry Berhad. View them for free.
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 V.S. Industry Berhad is:
7.7% = RM174m ÷ RM2.3b (Based on the trailing twelve months to January 2025).
The 'return' refers to a company's earnings over the last year. One way to conceptualize this is that for each MYR1 of shareholders' capital it has, the company made MYR0.08 in profit.
View our latest analysis for V.S. Industry Berhad
So far, we've learned that ROE is a measure of a company's profitability. 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. 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.
At first glance, V.S. Industry Berhad's ROE doesn't look very promising. Next, when compared to the average industry ROE of 10%, the company's ROE leaves us feeling even less enthusiastic. Thus, the low net income growth of 3.3% seen by V.S. Industry Berhad over the past five years could probably be the result of the low ROE.
Next, on comparing with the industry net income growth, we found that V.S. Industry Berhad's reported growth was lower than the industry growth of 13% over the last few years, which is not something we like to see.
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. Doing so will help them establish if the stock's future looks promising or ominous. What is VS worth today? The intrinsic value infographic in our free research report helps visualize whether VS is currently mispriced by the market.
Despite having a normal three-year median payout ratio of 44% (or a retention ratio of 56% over the past three years, V.S. Industry Berhad has seen very little growth in earnings as we saw above. So there could be some other explanation in that regard. For instance, the company's business may be deteriorating.
In addition, V.S. Industry Berhad has been paying dividends over a period of at least ten years suggesting that keeping up dividend payments is way more important to the management even if it comes at the cost of business growth. Our latest analyst data shows that the future payout ratio of the company over the next three years is expected to be approximately 49%. Still, forecasts suggest that V.S. Industry Berhad's future ROE will rise to 14% even though the the company's payout ratio is not expected to change by much.
Overall, we have mixed feelings about V.S. Industry Berhad. While the company does have a high rate of profit retention, its low rate of return is probably hampering its earnings growth. Having said that, looking at the current analyst estimates, we found that the company's earnings are expected to gain momentum. To know more about the company's future earnings growth forecasts take a look at this free report on analyst forecasts for the company to find out more.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.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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