Is Metro Healthcare Berhad's (KLSE:METRO) Recent Performance Underpinned By Weak Financials?
With its stock down 7.0% over the past month, it is easy to disregard Metro Healthcare Berhad (KLSE:METRO). Given that stock prices are usually driven by a company's fundamentals over the long term, which in this case look pretty weak, we decided to study the company's key financial indicators. In this article, we decided to focus on Metro Healthcare Berhad's ROE.
Return on equity or ROE is a key measure used to assess how efficiently a company's management is utilizing the company's capital. Put another way, it reveals the company's success at turning shareholder investments into profits.
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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 Metro Healthcare Berhad is:
4.1% = RM3.1m ÷ RM76m (Based on the trailing twelve months to March 2025).
The 'return' is the profit over the last twelve months. One way to conceptualize this is that for each MYR1 of shareholders' capital it has, the company made MYR0.04 in profit.
See our latest analysis for Metro Healthcare Berhad
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. Assuming all else is equal, companies that have both a higher return on equity and higher profit retention are usually the ones that have a higher growth rate when compared to companies that don't have the same features.
It is quite clear that Metro Healthcare Berhad's ROE is rather low. Not just that, even compared to the industry average of 9.2%, the company's ROE is entirely unremarkable. Therefore, Metro Healthcare Berhad's flat earnings over the past five years can possibly be explained by the low ROE amongst other factors.
Next, on comparing with the industry net income growth, we found that Metro Healthcare Berhad's reported growth was lower than the industry growth of 15% over the last few years, which is not something we like to see.
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). This then helps them determine if the stock is placed for a bright or bleak future. Is Metro Healthcare Berhad fairly valued compared to other companies? These 3 valuation measures might help you decide.
With a high three-year median payout ratio of 68% (implying that the company keeps only 32% of its income) of its business to reinvest into its business), most of Metro Healthcare Berhad's profits are being paid to shareholders, which explains the absence of growth in earnings.
Additionally, Metro Healthcare Berhad has paid dividends over a period of seven years, which means that the company's management is determined to pay dividends even if it means little to no earnings growth. Based on the latest analysts' estimates, we found that the company's future payout ratio over the next three years is expected to hold steady at 76%. Still, forecasts suggest that Metro Healthcare Berhad's future ROE will rise to 8.2% even though the the company's payout ratio is not expected to change by much.
On the whole, Metro Healthcare Berhad's performance is quite a big let-down. The company has seen a lack of earnings growth as a result of retaining very little profits and whatever little it does retain, is being reinvested at a very low rate of return. With that said, the latest industry analyst forecasts reveal that the company's earnings are expected to accelerate. To know more about the latest analysts predictions for the company, check out this visualization of analyst forecasts for the company.
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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