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SAM Engineering & Equipment (M) Berhad (KLSE:SAM) has had a great run on the share market with its stock up by a significant 21% over the last three months. As most would know, fundamentals are what usually guide market price movements over the long-term, so we decided to look at the company's key financial indicators today to determine if they have any role to play in the recent price movement. Particularly, we will be paying attention to SAM Engineering & Equipment (M) Berhad's ROE today.

Return on Equity or ROE is a test of how effectively a company is growing its value and managing investors money. Simply put, it is used to assess the profitability of a company in relation to its equity capital.

View our latest analysis for SAM Engineering & Equipment (M) Berhad

The formula for ROE is:

Return on Equity = Net Profit (from continuing operations) Shareholders' Equity

So, based on the above formula, the ROE for SAM Engineering & Equipment (M) Berhad is:

11% = RM102m RM914m (Based on the trailing twelve months to December 2023).

The 'return' is the amount earned after tax over the last twelve months. So, this means that for every MYR1 of its shareholder's investments, the company generates a profit of MYR0.11.

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 dont share these attributes.

At first glance, SAM Engineering & Equipment (M) Berhad's ROE doesn't look very promising. However, the fact that the its ROE is quite higher to the industry average of 8.4% doesn't go unnoticed by us. Consequently, this likely laid the ground for the decent growth of 5.3% seen over the past five years by SAM Engineering & Equipment (M) Berhad. Bear in mind, the company does have a moderately low ROE. It is just that the industry ROE is lower. Therefore, the growth in earnings could also be the result of other factors. Such as- high earnings retention or the company belonging to a high growth industry.

As a next step, we compared SAM Engineering & Equipment (M) Berhad's net income growth with the industry and were disappointed to see that the company's growth is lower than the industry average growth of 7.5% in the same period.

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Earnings growth is a huge factor in stock valuation. Its important for an investor to know whether the market has priced in the company's expected earnings growth (or decline). By doing so, they will have an idea if the stock is headed into clear blue waters or if swampy waters await. Is SAM fairly valued? This infographic on the company's intrinsic value has everything you need to know.

In SAM Engineering & Equipment (M) Berhad's case, its respectable earnings growth can probably be explained by its low three-year median payout ratio of 21% (or a retention ratio of 79%), which suggests that the company is investing most of its profits to grow its business.

Moreover, SAM Engineering & Equipment (M) Berhad is determined to keep sharing its profits with shareholders which we infer from its long history of paying a dividend for at least ten years. Based on the latest analysts' estimates, we found that the company's future payout ratio over the next three years is expected to hold steady at 24%. Accordingly, forecasts suggest that SAM Engineering & Equipment (M) Berhad's future ROE will be 12% which is again, similar to the current ROE.

In total, it does look like SAM Engineering & Equipment (M) Berhad has some positive aspects to its business. Specifically, we like that the company is reinvesting a huge chunk of its profits at a respectable rate of return. This of course has caused the company to see a good amount of growth in its earnings. 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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Has SAM Engineering & Equipment (M) Berhad's (KLSE:SAM) Impressive Stock Performance Got Anything to Do With ... - Yahoo Finance