Beshom Holdings Berhad (KLSE:BESHOM) has had a tough three months, with its share price down 5.3%. To determine whether this trend continues, we decided to focus on the weakness in the fundamentals that shape long-term market trends. Specifically, we decided to examine Beshom Holdings Berhad’s ROE in this article.
ROE or return on equity is a useful tool to assess how effectively a company can generate returns on the investment it receives from its shareholders. More simply, it measures a company’s profitability in relation to shareholder equity.
Check out our latest analysis for Beshom Holdings Berhad.
The formula for calculating return on equity is as follows:
Return on equity = Net income (from continuing operations) ÷ Shareholders’ equity
So, based on the above formula, Beshom Holdings Berhad’s ROE is:
3.2% = RM11m ÷ RM327m (Based on trailing 12 months to July 2024).
“Return” is the annual profit. So for every RM1 of its shareholders’ investment, the company generates RM0.03 in profit.
So far, we have learned that ROE measures how efficiently a company is generating its profits. We are then able to assess a company’s future ability to generate profits based on how much of its profits it chooses to reinvest or “retain.” Generally, other things being equal, companies with high return on equity and profit retention will have higher growth rates than companies without these attributes.
It’s clear that Beshom Holdings Berhad’s ROE is quite low. Not only that, but compared to the industry average of 16%, the company’s ROE is completely unremarkable. So it’s not surprising that Beshom Holdings Berhad’s net profit fell 25% over five years, given its low ROE. However, other factors may reduce revenue. For example, the company has a very high dividend payout ratio or faces competitive pressures.
Having said that, we compared Beshom Holdings Berhad’s performance with the industry and find that the company has shrunk its profits, while the industry has grown its profits at a rate of 12% over the same five-year period. , I was concerned.
Past revenue growth
Earnings growth is a big factor in stock valuation. It’s important for investors to know whether the market is pricing in a company’s expected earnings growth (or decline). That way, you’ll know if the stock is headed for clear blue waters or if a swamp awaits. Is BESHOM fairly valued? This infographic on the company’s intrinsic value contains everything you need to know.
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Beshom Holdings Berhad’s median three-year dividend payout ratio is a high 85%, meaning it retains 15% of its profits. This suggests that the company pays out most of its profits to shareholders as dividends. This goes some way to explaining why the company’s profits are shrinking. The business is left with only a small amount of capital that can be reinvested. This is a vicious cycle that does not benefit the company in the long run. To learn about the 2 risks we have identified for Beshom Holdings Berhad, please visit our risks dashboard for free.
Furthermore, Beshom Holdings Berhad has been paying dividends for at least 10 years, suggesting that management must have recognized that shareholders wanted dividends more than profit growth. Based on existing analyst forecasts, the company’s future dividend payout ratio is expected to decline to 61% over the next three years. Therefore, the expected lower dividend payout ratio explains the company’s ROE, which is expected to rise to 6.4% over the same period.
Overall, Beshom Holdings Berhad’s results have been quite disappointing. Given that the company doesn’t reinvest much into its business and has a low ROE, it would be no surprise if it doesn’t or won’t grow its earnings. Having said that, we researched the latest analyst forecasts and found that while the company has seen its earnings shrink in the past, analysts expect future earnings to grow. Are these analyst forecasts based on broader expectations for the industry, or are they based on the company’s fundamentals? Click here to be taken to our analyst 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 using only unbiased methodologies, and articles are not intended to be financial advice. This is not a recommendation to buy or sell any stock, and does not take into account your objectives or financial situation. We aim to provide long-term, focused analysis based on fundamental data. Note that our analysis may not factor in the latest announcements or qualitative material from price-sensitive companies. Simply Wall St has no position in any stocks mentioned.
