RGB International Bhd.'s Stock Dip: Temporary Due to Strong Fundamentals?

With its stock experiencing a 12% decline over the past week, one might be tempted to overlook RGB International Bhd (KLSE:RGB). However, upon closer inspection of its robust financials, you may want to reconsider. As fundamentals generally drive long-term market outcomes, this company merits careful examination. Our focus today will be on RGB International Bhd's Return on Equity (ROE). 

ROE is a valuable metric for evaluating how effectively a company generates returns from the investment it receives from shareholders. In essence, ROE measures the profitability of a company relative to its equity capital. 

The formula for calculating return on equity is as follows: 

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

Using this formula, we can calculate that the ROE for RGB International Bhd stands at: 

11% = RM33m ÷ RM287m (Based on the trailing twelve months up until March 2024). 

This means that for every MYR1 worth of equity in RGB International Bhd., they were able to generate MYR0.11 in profit. 

An efficient gauge for predicting future earnings potential within companies is their ROEs combined with their profit retention or reinvestment rates. Companies typically have higher growth rates if they show both high return-on-equity and high-profit retention compared to those lacking these characteristics. 

While initially appearing unremarkable, close scrutiny reveals that RGB International Bhd's ROE surpasses the industry average of 4.5%. This likely laid fertile ground for respectable growth seen by RGB over five years at 5.4%. 

However, remember that while having moderately low ROE compared to other industries', it still outperforms its own industry standard which could indicate broader industry growth trends or low payout ratio contributing towards earnings growth. 

Comparing net income growth between RGB and its industry revealed pleasing results; The company has surpassed average industry progression standing at 4.3%. 

Earnings growth profoundly affects stock valuation. Investors should ascertain whether the expected earnings growth or decline is factored into the price, helping to determine if a stock's future appears promising or precarious. 

RGB International Bhd has managed to maintain a median payout ratio of 24% over three years (suggesting it retains 76% of its income). This suggests significant reinvestment into growing its business operations. 

Moreover, RGB International Bhd has consistently paid dividends for at least ten years, indicating their sincere commitment towards profit-sharing with shareholders. 

In conclusion, we are quite satisfied with RGB International Bhd's performance. We appreciate that it has been reinvesting substantial portions of its profits at moderate rates of return leading to increased earnings. If this pattern continues, it may positively impact share prices given the influence earnings per share have on long-term share prices. 

However, investors must also consider business risk factors affecting stock prices before making investment decisions. You can view identified risks for RGB International Bhd free on our platform here.