Is Atrium Real Estate Investment Trust’s (KLSE:ATRIUM) Recent Stock Performance Influenced By Its Fundamentals In Any Way?
Atrium Real Estate Investment Trust (KLSE: ATRIUM) has seen the stock market rise significantly over the past three months. The share rose by an impressive 13%. We wonder if and what role the company’s financials play in this price change, as a company’s long-term fundamentals usually determine market results. In particular, we decided to examine the Atrium Real Estate Investment Trust’s ROE in this article.
Return on Equity, or ROE, is a test of how effectively a company is increasing its value and managing investors’ money. In short, the ROE shows the profit each dollar makes on its shareholder investment.
Check out our latest analysis for Atrium Real Estate Investment Trust
How do you calculate the return on equity?
The return on equity can be calculated using the following formula:
Return on Equity = Net Income (from continuing operations) ÷ Equity
So, based on the formula above, the ROE for Atrium Real Estate Investment Trust is:
8.4% = RM 22 million ÷ RM 266 million (based on the last twelve months to March 2021).
The “rate of return” is the income that the company has earned over the past year. Another possibility is that for every equity worth MYR1, the company was able to make a profit of MYR0.08.
What does ROE have to do with earnings growth?
We have already established that ROE serves as an efficient profit factor for a company’s future profits. Based on how much of its profits the company intends to reinvest or “keep”, we can then evaluate a company’s future ability to generate profits. When other things are alike, companies with high return on equity and retained earnings generally have a higher growth rate than companies that do not share these traits.
Earnings growth and 8.4% ROE of Atrium Real Estate Investment Trust
At first glance, the Atrium Real Estate Investment Trust’s ROE doesn’t look that attractive. However, the fact that the ROE is well above the industry average of 3.4% does not go unnoticed to us. This probably explains, among other things, the moderate 7.3% growth of the Atrium Real Estate Investment Trust over the past five years. Keep in mind that the company has a moderately low ROE. It’s just that the industry’s ROE is lower. The earnings growth could therefore also be attributed to other factors. For example, the company has a low payout ratio or could be in a high-growth industry.
Given the industry shrank 11% in profits over the same period, the company’s net profit growth is impressive.
KLSE: ATRIUM Past Earnings Growth May 27, 2021
Earnings growth is an important metric to consider when valuing a stock. It is important for an investor to know if the market has priced in the company’s expected earnings growth (or decline). That way, they can determine if the future of the stock is promising or threatening. If you’re wondering about the Atrium Real Estate Investment Trust’s rating, check out this measure of value for money versus the industry.
Is Atrium Real Estate Investment Trust Using Its Retained Profits Effectively?
The Atrium Real Estate Investment Trust appears to be paying out most of its earnings as dividends, based on the three-year median payout ratio of 62%, meaning the company only keeps 38% of its earnings. However, this is typical of REITs as they are often required by law to distribute most of their earnings. Even so, as we saw above, the company’s earnings grew moderately.
Additionally, Atrium Real Estate Investment Trust is determined to continue to share its profits with shareholders, which we infer from its long history of paying dividends for at least ten years.
Overall, we think the Atrium Real Estate Investment Trust has some positive qualities. In particular, the respectable return on investment which has likely resulted in significant earnings growth. Still, the company keeps a small portion of its profits. That means that despite all of this, the company was able to increase its profits. So that’s not bad. So far we’ve only had a brief discussion about the company’s earnings growth. For more insight into Atrium Real Estate Investment Trust’s past earnings growth, check out this visualization of past earnings, sales, and cash flows.
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