Shares of the Saudi Arabian mobile telecommunications company (TADAWUL:7030) are doing well: does finance have a role to play?
Shares of Mobile Telecommunications Company Saudi Arabia (TADAWUL:7030) are up 11% in the past three months. As most know, fundamentals are what generally guide market price movements over the long term, so we decided to take a look at key financial indicators in business today to see if they have a role to play. play in the recent price movement. In this article, we have decided to focus on the ROE of Mobile Telecommunications Company Saudi Arabia.
ROE or return on equity is a useful tool for evaluating how effectively a company can generate returns on the investment it has received from its shareholders. In simple terms, it is used to assess the profitability of a company in relation to its equity.
Check out our latest analysis for Mobile Telecommunications Company Saudi Arabia
How is ROE calculated?
the return on equity formula is:
Return on equity = Net income (from continuing operations) ÷ Equity
So, based on the above formula, the ROE for Mobile Telecommunications Company Saudi Arabia is:
2.4% = ر.س214m ÷ ر.س9.0b (Based on the last twelve months to December 2021).
“Yield” is the income the business has earned over the past year. One way to conceptualize this is that for every SAR1 of share capital it has, the company has made a profit of 0.02 SAR.
Why is ROE important for earnings growth?
So far, we have learned that ROE measures how efficiently a company generates its profits. We now need to assess how much profit the company is reinvesting or “retaining” for future growth, which then gives us an idea of the company’s growth potential. Assuming everything else remains unchanged, the higher the ROE and earnings retention, the higher a company’s growth rate compared to companies that don’t necessarily exhibit these characteristics.
Profit growth and ROE of 2.4% of the mobile telecommunications company in Saudi Arabia
It is difficult to say that the ROE of Mobile Telecommunications Company Saudi Arabia is very good on its own. Even compared to the industry average of 12%, the ROE figure is quite disappointing. However, we are pleasantly surprised to see that Mobile Telecommunications Company Saudi Arabia has grown its net profit at a significant rate of 49% over the past five years. We believe there could be other factors at play here. For example, the business has a low payout ratio or is efficiently managed.
We then compared the growth of Mobile Telecommunications Company Saudi Arabia net income with the industry and we are glad to see that the growth figure of the company is higher compared to the industry which has a growth rate of 7.9% over the same period.
Earnings growth is an important metric to consider when evaluating a stock. It is important for an investor to know whether the market has priced in the expected growth (or decline) in the company’s earnings. This then helps them determine if the stock is positioned for a bright or bleak future. A good indicator of expected earnings growth is the P/E ratio which determines the price the market is willing to pay for a stock based on its earnings outlook. So, you might want to check if Mobile Telecommunications Company Saudi Arabia is trading on a high P/E or a low P/E, relative to its sector.
Is Saudi Arabia’s mobile telecommunications company effectively reinvesting profits?
Mobile Telecommunications Company Saudi Arabia currently pays no dividends, which essentially means that it has reinvested all of its profits back into the business. This certainly contributes to the high earnings growth number we discussed above.
All in all, we think Mobile Telecommunications Company Saudi Arabia certainly has some positive factors to consider. Despite its low rate of return, the fact that the company reinvests a very large portion of its profits back into its business no doubt contributed to the strong growth in its profits. That said, a study of the latest analyst forecasts shows that the company should see a slowdown in future earnings growth. Are these analyst expectations based on general industry expectations or company fundamentals? Click here to access our analyst forecast page for the company.
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This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts only using unbiased methodology and our articles are not intended to be financial advice. It is not a recommendation to buy or sell stocks and does not take into account your objectives or financial situation. Our goal is to bring you targeted long-term analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price-sensitive companies or qualitative materials. Simply Wall St has no position in the stocks mentioned.