Yahoo Finance Is Ta Ann Holdings Berhad's (KLSE:TAANN) Recent Stock Performance Influenced By Its Fundamentals In Any Way?
Ta Ann Holdings Berhad (KLSE:TAANN) has had a great run on the share market with its stock up by a significant 12% over the last three months. As most would know, fundamentals are what usually guide market price movements over the long-term, so we decided to look at the company's key financial indicators today to determine if they have any role to play in the recent price movement. Particularly, we will be paying attention to Ta Ann Holdings Berhad's ROE today.
Return on Equity or ROE is a test of how effectively a company is growing its value and managing investors’ money. 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 Ta Ann Holdings 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 Ta Ann Holdings Berhad is:
10% = RM213m ÷ RM2.1b (Based on the trailing twelve months to September 2023).
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 MYR0.10 in profit.
What Is The Relationship Between ROE And Earnings Growth?
We have already established that ROE serves as an efficient profit-generating gauge for a company's future earnings. 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 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.
Ta Ann Holdings Berhad's Earnings Growth And 10% ROE
At first glance, Ta Ann Holdings Berhad's ROE doesn't look very promising. However, the fact that the its ROE is quite higher to the industry average of 6.8% doesn't go unnoticed by us. Especially when you consider Ta Ann Holdings Berhad's exceptional 36% net income growth over the past five years. That being said, the company does have a slightly low ROE to begin with, just that it is higher than the industry average. So, there might well be other reasons for the earnings to grow. E.g the company has a low payout ratio or could belong to a high growth industry.
We then compared Ta Ann Holdings 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 24% in the same 5-year 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. This then helps them determine if the stock is placed for a bright or bleak future. Is Ta Ann Holdings Berhad fairly valued compared to other companies? These 3 valuation measures might help you decide.
Is Ta Ann Holdings Berhad Using Its Retained Earnings Effectively?
The high three-year median payout ratio of 55% (implying that it keeps only 45% of profits) for Ta Ann Holdings Berhad suggests that the company's growth wasn't really hampered despite it returning most of the earnings to its shareholders.
Besides, Ta Ann Holdings Berhad has been paying dividends for at least ten years or more. This shows that the company is committed to sharing profits with its shareholders. Upon studying the latest analysts' consensus data, we found that the company is expected to keep paying out approximately 49% of its profits over the next three years. As a result, Ta Ann Holdings Berhad's ROE is not expected to change by much either, which we inferred from the analyst estimate of 10.0% for future ROE.
Summary
On the whole, we do feel that Ta Ann Holdings Berhad has some positive attributes. Specifically, its respectable ROE which likely led to the considerable growth in earnings. Yet, the company is retaining a small portion of its profits. Which means that the company has been able to grow its earnings in spite of it, so that's not too bad. 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. 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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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.
