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Does finance have a role to play?
Cloudpoint Technology Berhad (KLSE:CLOUDPT) has had a great run on the stock market, with its shares rising a significant 31% over the past three months. Given that stock prices are generally aligned with a company’s long-term financial performance, we decided to study its financial metrics more closely to see if they played a role in the recent price change. In particular, we will be attentive Cloudpoint Berhad Technology ROE today.
ROE or return on equity is a useful tool for evaluating how effectively a company can generate returns on the investment it has received from its shareholders. Put another way, it reveals the company’s success in transforming shareholder investments into profits.
See our latest analysis for Cloudpoint Technology Berhad
How is ROE calculated?
O formula for ROE It is:
Return on Equity = Net Profit (from continuing operations) ÷ Equity
Therefore, based on the above formula, Cloudpoint Technology Berhad’s ROE is:
24% = RM17 million ÷ RM69 million (based on trailing twelve months to March 2024).
The ‘return’ refers to a company’s profits over the last year. One way to conceptualize this is that for every MYR1 of share capital it has, the company made MYR0.24 in profit.
Why is ROE important for earnings growth?
So 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 will then be able to assess a company’s earnings growth potential. Assuming everything else is equal, companies that have a higher return on equity and higher profit retention are generally those that have a higher growth rate when compared to companies that do not have the same characteristics.
A side-by-side comparison of Cloudpoint Technology Berhad’s earnings growth and 24% ROE
For starters, Cloudpoint Technology Berhad has a fairly high ROE, which is interesting. Secondly, a comparison to the industry’s reported average ROE of 12% is also not lost on us. Therefore, the substantial 20% net profit growth seen by Cloudpoint Technology Berhad over the past five years is not too surprising.
We then compared Cloudpoint Technology Berhad’s net profit growth with that of the industry and found that the company’s growth number is lower than the industry average growth rate of 30% over the same 5-year period, which is a bit worrisome.
past profit growth
Earnings growth is an important factor in stock valuation. What investors need to determine next is whether the expected earnings growth, or lack thereof, is already factored into the stock price. This will help them determine whether the stock’s future looks promising or ominous. If you are wondering about Cloudpoint Technology Berhad valuation, check out this indicator of your price/earnings ratiocompared to your industry.
The story continues
Is Cloudpoint Technology Berhad using its retained earnings effectively?
Cloudpoint Technology Berhad’s high three-year average payout ratio of 156% suggests the company is paying more to its shareholders than what it is earning. However, this did not harm its growth capacity as we saw previously. That said, it may be worth keeping an eye on the high payout ratio as this represents a huge risk. Our risk dashboard must have the 2 risks we identified for Cloudpoint Technology Berhad.
In addition to seeing earnings growth, Cloudpoint Technology Berhad only recently started paying dividends. It is quite possible that the company wanted to impress its shareholders.
Conclusion
Altogether, it appears that Cloudpoint Technology Berhad has some positives in its business. Its profits grew respectably, as we saw earlier, probably due to its high returns. However, it reinvests little or none of its profits, so we wonder what effect this could have on its future growth prospects. So far, we have only touched the surface of the company’s past performance, analyzing its fundamentals. So it might be worth checking this out. free detailed chart of Cloudpoint Technology Berhad’s past earnings as well as revenue and cash flows to gain deeper insight into company performance.
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This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts using only 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 into account your objectives or your financial situation. Our goal is to bring you long-term focused analysis driven by fundamental data. Please note that our analysis may not take into account the latest price-sensitive company announcements or qualitative materials. Simply Wall St has no position in any of the stocks mentioned.