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Is Apex Healthcare Berhad’s (KLSE:AHEALTH) Latest Stock Performance Being Led By Its Strong Fundamentals?


Apex Healthcare Berhad’s (KLSE:AHEALTH) stock is up by 7.5% over the past three months. Given that the market rewards strong financials in the long-term, we wonder if that is the case in this instance. Specifically, we decided to study Apex Healthcare Berhad’s ROE in this article.

Return on equity or ROE is an important factor to be considered by a shareholder because it tells them how effectively their capital is being reinvested. In short, ROE shows the profit each dollar generates with respect to its shareholder investments.

See our latest analysis for Apex Healthcare Berhad

How Do You Calculate Return On Equity?

The formula for return on equity is:

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

So, based on the above formula, the ROE for Apex Healthcare Berhad is:

17% = RM87m ÷ RM518m (Based on the trailing twelve months to September 2022).

The ‘return’ is the amount earned after tax over the last twelve months. That means that for every MYR1 worth of shareholders’ equity, the company generated MYR0.17 in profit.

What Is The Relationship Between ROE And Earnings Growth?

Thus far, we have learned that ROE measures how efficiently a company is generating its profits. 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. Assuming everything else remains unchanged, the higher the ROE and profit retention, the higher the growth rate of a company compared to companies that don’t necessarily bear these characteristics.

Apex Healthcare Berhad’s Earnings Growth And 17% ROE

To begin with, Apex Healthcare Berhad seems to have a respectable ROE. Especially when compared to the industry average of 9.8% the company’s ROE looks pretty impressive. This probably laid the ground for Apex Healthcare Berhad’s moderate 8.2% net income growth seen over the past five years.

Next, on comparing Apex Healthcare Berhad’s net income growth with the industry, we found that the company’s reported growth is similar to the industry average growth rate of 7.4% in the same period.

past-earnings-growth

Earnings growth is a huge factor in stock valuation. It’s 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. If you’re wondering about Apex Healthcare Berhad’s’s valuation, check out this gauge of its price-to-earnings ratio, as compared to its industry.

Is Apex Healthcare Berhad Making Efficient Use Of Its Profits?

With a three-year median payout ratio of 38% (implying that the company retains 62% of its profits), it seems that Apex Healthcare Berhad is reinvesting efficiently in a way that it sees respectable amount growth in its earnings and pays a dividend that’s well covered.

Besides, Apex Healthcare Berhad has been paying dividends for at least ten years or more. This shows that the company is committed to sharing profits with its shareholders. Our latest analyst data shows that the future payout ratio of the company over the next three years is expected to be approximately 36%. Accordingly, forecasts suggest that Apex Healthcare Berhad’s future ROE will be 14% which is again, similar to the current ROE.

Summary

On the whole, we feel that Apex Healthcare Berhad’s performance has been quite good. In particular, it’s great to see that the company is investing heavily into its business and along with a high rate of return, that has resulted in a sizeable growth in its earnings. That being so, a study of the latest analyst forecasts show that the company is expected to see a slowdown in its future earnings growth. To know more about the company’s future earnings growth forecasts take a look at this free report on analyst forecasts for the company to find out more.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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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