It’s hard to get excited after looking at the recent performance of Pavilion Real Estate Investment Trust (KLSE: PAVREIT), as its stock has fallen 6.4% in the past month. We decided to study the company’s financial data to determine if the downward trend will continue, as a company’s long-term performance usually dictates market results. In particular, we will be paying close attention to the ROE of Pavilion Real Estate Investment Trust today.
Return on equity or ROE is an important factor for a shareholder to consider because it tells them how efficiently their capital is being reinvested. Simply put, it is used to assess a company’s profitability against its equity.
Check out our latest review for Pavilion Real Estate Investment Trust
How do you calculate return on equity?
Return on equity can be calculated using the formula:
Return on equity = Net income (from continuing operations) Ã· Equity
Thus, based on the above formula, the ROE of Pavilion Real Estate Investment Trust is:
1.1% = RM41m RM3.8b (Based on the last twelve months up to September 2021).
The “return” is the profit of the last twelve months. Another way to look at this is that for every MYR 1 worth of equity, the business was able to earn MYR 0.01 in profit.
What does ROE have to do with profit growth?
We have already established that ROE is an effective indicator of profit generation for a company’s future profits. We now need to assess how much profit the company is reinvesting or “holding back” for future growth, which then gives us an idea of ââthe growth potential of the company. Generally speaking, all other things being equal, companies with high return on equity and high profit retention have a higher growth rate than companies that do not share these attributes.
Pavilion Real Estate Investment Trust Earnings Growth and ROE of 1.1%
It is difficult to say that the ROE of Pavilion Real Estate Investment Trust is very good on its own. Even compared to the industry’s average ROE of 4.1%, the company’s ROE is pretty dismal. For this reason, Pavilion Real Estate Investment Trust’s 23% drop in net income over five years is not surprising given its lower ROE. We believe there could also be other aspects that negatively influence the company’s earnings outlook. Such as – low profit retention or misallocation of capital.
As a next step, we compared the performance of Pavilion Real Estate Investment Trust with the industry and found that the performance of Pavilion Real Estate Investment Trust is depressing even compared to the industry, which has reduced its profits at a rate of 7.3% over the same period, which is slower than the company.
Profit growth is a huge factor in the valuation of stocks. It is important for an investor to know whether the market has factored in the expected growth (or decline) in company earnings. This will help them determine whether the future of the stock looks bright or threatening. Has the market assessed PAVREIT’s future prospects? You can find out in our latest Intrinsic Value infographic research report.
Is Pavilion Real Estate Investment Trust Efficiently Using Its Retained Earnings?
Pavilion Real Estate Investment Trust appears to pay out the bulk of its income as dividends judging by its three-year median payout rate of 77% (meaning the company only keeps 23% of the profits). However, this is typical for REITs as they are often required by law to distribute most of their income. This probably explains the decline in the company’s profits.
Additionally, Pavilion Real Estate Investment Trust has paid dividends over a period of at least ten years, suggesting that sustaining dividend payments is much more important to management, even if it comes at the expense of growth. of the company. Our latest analyst data shows the company’s future payout ratio is expected to reach 117% over the next three years. However, Pavilion Real Estate Investment Trust’s future ROE is expected to increase to 5.5% despite the expected increase in the company’s payout ratio. We infer that there could be other factors that could be behind the anticipated growth of the company’s ROE.
All in all, we would have thought well before deciding on any investment action regarding Pavilion Real Estate Investment Trust. The company has experienced a lack of earnings growth due to keeping very little earnings and what little it keeps is being reinvested at a very low rate of return. However, the latest forecast from industry analysts shows that analysts expect a significant improvement in the company’s earnings growth rate. To learn more about the latest analyst forecast for the business, check out this visualization of the analyst forecast for the business.
This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts using only unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell shares and does not take into account your goals or your financial situation. Our aim is to bring you long-term, targeted analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price sensitive companies or qualitative documents. Simply Wall St has no position in the mentioned stocks.
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