Will the weakness of HLT Global Berhad (KLSE: HLT) stock prove temporary given strong fundamentals?
With its stock down 45% in the past three months, it’s easy to overlook HLT Global Berhad (KLSE: HLT). But if you pay close attention to it, you might understand that its strong financial data could mean that the stock could potentially see its value rise in the long run, given how the markets typically reward companies with good health. financial. Specifically, we have decided to study the ROE of HLT Global Berhad in this article.
ROE or return on equity is a useful tool to assess how effectively a company can generate the returns on investment it has received from its shareholders. In other words, it reveals the company’s success in turning shareholders’ investments into profits.
Check out our latest review for HLT Global Berhad
How to calculate return on equity?
The formula for ROE is:
Return on equity = Net income (from continuing operations) ÷ Equity
So, based on the above formula, the ROE for HLT Global Berhad is:
32% = RM56m RM174m (Based on the last twelve months up to June 2021).
The “return” is the profit of the last twelve months. One way to conceptualize this is that for every MYR1 of shareholder capital it has, the company made a profit of MYR0.32.
Why is ROE important for profit growth?
So far, we’ve learned that ROE measures how efficiently a business generates profits. Based on how much of those profits the company reinvests or “withholds” and how efficiently it does so, we are then able to assess a company’s profit growth potential. Assuming everything else is equal, companies that have both a higher return on equity and higher profit retention are generally those that have a higher growth rate than companies that do not have the same characteristics.
A side-by-side comparison of HLT Global Berhad’s 32% profit growth and ROE
First of all, we love that HLT Global Berhad has an impressive ROE. Second, even compared to the industry average of 8.4%, the company’s ROE is quite impressive. Thus, the substantial 58% net income growth observed by HLT Global Berhad over the past five years is not too surprising.
We then compared the net income growth of HLT Global Berhad with the industry and we are happy to see that the growth number of the company is higher compared to the industry which has a growth rate of 4, 1% over the same period.
The basis for attaching value to a business is, to a large extent, related to the growth of its profits. What investors next need to determine is whether the expected earnings growth, or lack thereof, is already built into the share price. By doing this, they will have an idea if the stock is heading for clear blue waters or if swampy waters are waiting for them. If you are wondering about the valuation of HLT Global Berhad, check out this gauge of its price / earnings ratio, relative to its industry.
Is HLT Global Berhad Efficiently Using Its Retained Earnings?
Since HLT Global Berhad does not pay any dividends to its shareholders, we infer that the company has reinvested all of its profits to grow its business.
Overall, we think the performance of HLT Global Berhad has been quite good. Specifically, we like the fact that the company is reinvesting a huge portion of its profits at a high rate of return. This of course allowed the company to experience substantial growth in profits. If the company continues to grow earnings like it has, it could have a positive impact on its stock price given the influence of earnings per share on long-term stock prices. It should be remembered that the results of stock prices also depend on the potential risks a company may face. It is therefore important that investors are aware of the risks inherent in the business. You can see the 4 risks we have identified for HLT Global Berhad by visiting our risk dashboard for free on our platform here.
This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts using only unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell shares and does not take into account your goals or your financial situation. Our aim is to bring you long-term, targeted analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price sensitive companies or qualitative documents. Simply Wall St has no position in any of the stocks mentioned.
Do you have any feedback on this item? Are you worried about the content? Get in touch with us directly. You can also send an email to the editorial team (at) simplywallst.com.