Yahoo Finance Oriental Food Industries Holdings Berhad's (KLSE:OFI) Fundamentals Look Pretty Strong: Could The Market Be Wrong About The Stock?
It is hard to get excited after looking at Oriental Food Industries Holdings Berhad's (KLSE:OFI) recent performance, when its stock has declined 5.2% over the past month. However, stock prices are usually driven by a company’s financial performance over the long term, which in this case looks quite promising. Specifically, we decided to study Oriental Food Industries Holdings Berhad's ROE in this article.
Return on Equity or ROE is a test of how effectively a company is growing its value and managing investors’ money. Put another way, it reveals the company's success at turning shareholder investments into profits.
Check out our latest analysis for Oriental Food Industries Holdings 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 Oriental Food Industries Holdings Berhad is:
16% = RM43m ÷ RM263m (Based on the trailing twelve months to March 2024).
The 'return' is the income the business earned over the last year. Another way to think of that is that for every MYR1 worth of equity, the company was able to earn MYR0.16 in profit.
What Has ROE Got To Do With Earnings Growth?
We have already established that ROE serves as an efficient profit-generating gauge for a company's future earnings. Depending on how much of these profits the company reinvests or "retains", and how effectively it does so, we are then able to assess a company’s earnings growth potential. Generally speaking, other things being equal, firms with a high return on equity and profit retention, have a higher growth rate than firms that don’t share these attributes.
Oriental Food Industries Holdings Berhad's Earnings Growth And 16% ROE
To begin with, Oriental Food Industries Holdings Berhad seems to have a respectable ROE. Further, the company's ROE compares quite favorably to the industry average of 8.3%. This probably laid the ground for Oriental Food Industries Holdings Berhad's significant 22% net income growth seen over the past five years. However, there could also be other causes behind this growth. For example, it is possible that the company's management has made some good strategic decisions, or that the company has a low payout ratio.
We then performed a comparison between Oriental Food Industries Holdings Berhad's net income growth with the industry, which revealed that the company's growth is similar to the average industry growth of 25% in the same 5-year period.
Earnings growth is an important metric to consider when valuing a stock. What investors need to determine next is if the expected earnings growth, or the lack of it, is already built into the share price. This then helps them determine if the stock is placed for a bright or bleak future. Is Oriental Food Industries Holdings Berhad fairly valued compared to other companies? These 3 valuation measures might help you decide.
Is Oriental Food Industries Holdings Berhad Making Efficient Use Of Its Profits?
Oriental Food Industries Holdings Berhad's three-year median payout ratio is a pretty moderate 37%, meaning the company retains 63% of its income. So it seems that Oriental Food Industries Holdings Berhad is reinvesting efficiently in a way that it sees impressive growth in its earnings (discussed above) and pays a dividend that's well covered.
Moreover, Oriental Food Industries Holdings 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.
Summary
On the whole, we feel that Oriental Food Industries Holdings Berhad's performance has been quite good. Specifically, we like that the company is reinvesting a huge chunk of its profits at a high rate of return. This of course has caused the company to see substantial growth in its earnings. If the company continues to grow its earnings the way it has, that could have a positive impact on its share price given how earnings per share influence long-term share prices. Let's not forget, business risk is also one of the factors that affects the price of the stock. So this is also an important area that investors need to pay attention to before making a decision on any business. To know the 1 risk we have identified for Oriental Food Industries Holdings Berhad visit our risks dashboard for free.
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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.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com
