19-03-2025
Greatech Technology Berhad's (KLSE:GREATEC) Fundamentals Look Pretty Strong: Could The Market Be Wrong About The Stock?
With its stock down 33% over the past three months, it is easy to disregard Greatech Technology Berhad (KLSE:GREATEC). However, stock prices are usually driven by a company's financial performance over the long term, which in this case looks quite promising. In this article, we decided to focus on Greatech Technology Berhad's ROE.
Return on equity or ROE is an important factor to be considered by a shareholder because it tells them how effectively their capital is being reinvested. In other words, it is a profitability ratio which measures the rate of return on the capital provided by the company's shareholders.
View our latest analysis for Greatech Technology Berhad
The formula for ROE is:
Return on Equity = Net Profit (from continuing operations) ÷ Shareholders' Equity
So, based on the above formula, the ROE for Greatech Technology Berhad is:
17% = RM155m ÷ RM909m (Based on the trailing twelve months to December 2024).
The 'return' is the profit over the last twelve months. That means that for every MYR1 worth of shareholders' equity, the company generated MYR0.17 in profit.
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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. 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.
At first glance, Greatech Technology Berhad seems to have a decent ROE. Especially when compared to the industry average of 4.6% the company's ROE looks pretty impressive. This probably laid the ground for Greatech Technology Berhad's moderate 16% net income growth seen over the past five years.
We then compared Greatech Technology 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 1.5% in the same 5-year period.
The basis for attaching value to a company is, to a great extent, tied to its earnings growth. The investor should try to establish if the expected growth or decline in earnings, whichever the case may be, is priced in. Doing so will help them establish if the stock's future looks promising or ominous. If you're wondering about Greatech Technology Berhad's's valuation, check out this gauge of its price-to-earnings ratio, as compared to its industry.
Greatech Technology 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.
In total, we are pretty happy with Greatech Technology 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. Having said that, the company's earnings growth is expected to slow down, as forecasted in the current analyst estimates. Are these analysts expectations based on the broad expectations for the industry, or on the company's fundamentals? Click here to be taken to our analyst's forecasts page for the company.
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