Ygl Convergence Berhad (KLSE:YGL)’s recent stock performance looks decent – could strong fundamentals be the reason?

Ygl Convergence Berhad (KLSE:YGL) stock is up 3.6% over the past week. Since the market usually pays for a company’s long-term financial health, we decided to examine the company’s fundamentals to see if they could influence the market. In this article, we decided to focus on Ygl Convergence Berhad’s ROE.

Return on equity or ROE is a test of how effectively a company increases its value and manages investors’ money. In other words, it shows the company’s success in converting shareholder investments into profits.

Check out our latest analysis for Ygl Convergence Berhad

Return on equity can be calculated using the formula:

Return on equity = net profit (from continuing operations) ÷ equity

So, based on the above formula, the ROE for Ygl Convergence Berhad is:

12% = RM2.1mil ÷ RM17mil (Based on trailing twelve months to September 2024).

“Return” refers to a company’s profit over the last year. Another way to think of it is that for every MYR1 worth of equity, the company was able to generate a profit of MYR0.12.

We have already established that ROE serves as an efficient profit-generating measure of a company’s future earnings. We now need to evaluate how much profit the company reinvests or “retains” for future growth, which then gives us an idea of ​​the company’s growth potential. Assuming everything else stays the same, companies that have both a higher return on equity and higher profit retention are typically the ones that have a higher growth rate compared to companies that don’t have the same characteristics.

At first glance, Ygl Convergence Berhad appears to have a decent ROE. Furthermore, the company’s ROE of 13% is in line with the industry average. This certainly gives some context to Ygl Convergence Berhad’s exceptional net profit growth of 56% over the last five years. However, there could also be other drivers behind this growth. For example, it is possible that management has made some good strategic decisions or that the company has a low payout ratio.

Next, when comparing with the industry’s net income growth, we found that Ygl Convergence Berhad’s growth is quite high compared to the industry average of 31% in the same period, which is great to see.

The basis for a company’s valuation depends to a large extent on earnings growth. Next, investors need to determine whether or not expected earnings growth is already built into the stock price. This will give them an idea of ​​whether the stock is headed to clear, blue waters or whether swampy waters await them. If you’re wondering about Ygl Convergence Berhad’s valuation, take a look at this measure of the company’s price-to-earnings ratio compared to the industry.

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