With its stock down 3.9% over the past week, it is easy to disregard Mr D.I.Y. Group (M) Berhad (KLSE:MRDIY). 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 Mr D.I.Y. Group (M) 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 simpler terms, it measures the profitability of a company in relation to shareholder’s equity.
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 Mr D.I.Y. Group (M) Berhad is:
35% = RM471m ÷ RM1.3b (Based on the trailing twelve months to September 2022).
The ‘return’ refers to a company’s earnings over the last year. Another way to think of that is that for every MYR1 worth of equity, the company was able to earn MYR0.35 in profit.
What Has ROE Got To Do With Earnings Growth?
So far, we’ve learned that ROE is a measure of a company’s profitability. We now need to evaluate how much profit the company reinvests or “retains” for future growth which then gives us an idea about the growth potential of the company. 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.
A Side By Side comparison of Mr D.I.Y. Group (M) Berhad’s Earnings Growth And 35% ROE
To begin with, Mr D.I.Y. Group (M) Berhad has a pretty high ROE which is interesting. Additionally, the company’s ROE is higher compared to the industry average of 16% which is quite remarkable. Probably as a result of this, Mr D.I.Y. Group (M) Berhad was able to see a decent net income growth of 15% over the last five years.
As a next step, we compared Mr D.I.Y. Group (M) Berhad’s net income growth with the industry, and pleasingly, we found that the growth seen by the company is higher than the average industry growth of 3.6%.
Earnings growth is a huge factor in stock valuation. 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. Is Mr D.I.Y. Group (M) Berhad fairly valued compared to other companies? These 3 valuation measures might help you decide.
Is Mr D.I.Y. Group (M) Berhad Making Efficient Use Of Its Profits?
Mr D.I.Y. Group (M) Berhad has a healthy combination of a moderate three-year median payout ratio of 44% (or a retention ratio of 56%) and a respectable amount of growth in earnings as we saw above, meaning that the company has been making efficient use of its profits.
While Mr D.I.Y. Group (M) Berhad has been growing its earnings, it only recently started to pay dividends which likely means that the company decided to impress new and existing shareholders with a dividend. Our latest analyst data shows that the future payout ratio of the company over the next three years is expected to be approximately 46%. Accordingly, forecasts suggest that Mr D.I.Y. Group (M) Berhad’s future ROE will be 37% which is again, similar to the current ROE.
On the whole, we feel that Mr D.I.Y. Group (M) 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. Having said that, looking at the current analyst estimates, we found that the company’s earnings are expected to gain momentum. 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.
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