Is Complete Logistic Services Berhad’s(KLSE:COMPLET) Recent Stock Performance Tethered To Its Strong Fundamentals? – Simply Wall St

Complete Logistic Services Berhad’s (KLSE:COMPLET) stock is up by a considerable 16% over the past three months. Given the company’s impressive performance, we decided to study its financial indicators more closely as a company’s financial health over the long-term usually dictates market outcomes. In this article, we decided to focus on Complete Logistic Services 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 other words, it is a profitability ratio which measures the rate of return on the capital provided by the company’s shareholders.

See our latest analysis for Complete Logistic Services 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 Complete Logistic Services Berhad is:

26% = RM42m ÷ RM162m (Based on the trailing twelve months to December 2020).

The ‘return’ is the income the business earned over the last year. That means that for every MYR1 worth of shareholders’ equity, the company generated MYR0.26 in profit.

Why Is ROE Important For 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.

Complete Logistic Services Berhad’s Earnings Growth And 26% ROE

Firstly, we acknowledge that Complete Logistic Services Berhad has a significantly high ROE. Additionally, the company’s ROE is higher compared to the industry average of 6.8% which is quite remarkable. So, the substantial 34% net income growth seen by Complete Logistic Services Berhad over the past five years isn’t overly surprising.

When you consider the fact that the industry earnings have shrunk at a rate of 10% in the same period, the company’s net income growth is pretty remarkable.

past-earnings-growth
KLSE:COMPLET Past Earnings Growth June 10th 2021

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. Doing so will help them establish if the stock’s future looks promising or ominous. Is Complete Logistic Services Berhad fairly valued compared to other companies? These 3 valuation measures might help you decide.

Is Complete Logistic Services Berhad Making Efficient Use Of Its Profits?

The three-year median payout ratio for Complete Logistic Services Berhad is 47%, which is moderately low. The company is retaining the remaining 53%. This suggests that its dividend is well covered, and given the high growth we discussed above, it looks like Complete Logistic Services Berhad is reinvesting its earnings efficiently.

Additionally, Complete Logistic Services Berhad has paid dividends over a period of at least ten years which means that the company is pretty serious about sharing its profits with shareholders.

Summary

On the whole, we feel that Complete Logistic Services Berhad’s performance has been quite good. Particularly, we like that the company is reinvesting heavily into its business, and at a high rate of return. Unsurprisingly, this has led to an impressive earnings growth. 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. Let’s not forget, business risk is also one of the factors that affects the price of the stock. So this is also an important area that investors need to pay attention to before making a decision on any business. To know the 4 risks we have identified for Complete Logistic Services Berhad visit our risks dashboard for free.

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This article by Simply Wall St is general in nature. 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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