Is Bupa Arabia for Cooperative Insurance Company's (TADAWUL:8210) Recent Stock Performance Influenced By Its Fundamentals In Any Way?

Most readers would already be aware that Bupa Arabia for Cooperative Insurance's (TADAWUL:8210) stock increased significantly by 18% over the past three months. We wonder if and what role the company's financials play in that price change as a company's long-term fundamentals usually dictate market outcomes. Particularly, we will be paying attention to Bupa Arabia for Cooperative Insurance's ROE today.

ROE or return on equity is a useful tool to assess how effectively a company can generate returns on the investment it received from its shareholders. In simpler terms, it measures the profitability of a company in relation to shareholder's equity.

See our latest analysis for Bupa Arabia for Cooperative Insurance

How Do You Calculate Return On Equity?

Return on equity can be calculated by using the formula:

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

So, based on the above formula, the ROE for Bupa Arabia for Cooperative Insurance is:

20% = ر.س940m ÷ ر.س4.7b (Based on the trailing twelve months to December 2023).

The 'return' is the profit over the last twelve months. That means that for every SAR1 worth of shareholders' equity, the company generated SAR0.20 in profit.

What Is The Relationship Between ROE And Earnings Growth?

Thus far, we have learned that ROE measures how efficiently a company is generating its profits. We now need to evaluate how much profit the company reinvests or "retains" for future growth which then gives us an idea about the growth potential of the company. 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.

Bupa Arabia for Cooperative Insurance's Earnings Growth And 20% ROE

At first glance, Bupa Arabia for Cooperative Insurance's ROE doesn't look very promising. However, the fact that the its ROE is quite higher to the industry average of 12% doesn't go unnoticed by us. This certainly adds some context to Bupa Arabia for Cooperative Insurance's moderate 12% net income growth seen over the past five years. That being said, the company does have a slightly low ROE to begin with, just that it is higher than the industry average. Hence there might be some other aspects that are causing earnings to grow. For example, it is possible that the broader industry is going through a high growth phase, or that the company has a low payout ratio.

When you consider the fact that the industry earnings have shrunk at a rate of 2.3% in the same 5-year period, the company's net income growth is pretty remarkable.

Earnings growth is an important metric to consider when valuing a stock. What investors need to determine next is if the expected earnings growth, or the lack of it, is already built into the share price. This then helps them determine if the stock is placed for a bright or bleak future. Is Bupa Arabia for Cooperative Insurance fairly valued compared to other companies? These 3 valuation measures might help you decide.

Is Bupa Arabia for Cooperative Insurance Efficiently Re-investing Its Profits?

The high three-year median payout ratio of 57% (or a retention ratio of 43%) for Bupa Arabia for Cooperative Insurance suggests that the company's growth wasn't really hampered despite it returning most of its income to its shareholders.

Additionally, Bupa Arabia for Cooperative Insurance has paid dividends over a period of at least ten years which means that the company is pretty serious about sharing its profits with shareholders. Our latest analyst data shows that the future payout ratio of the company over the next three years is expected to be approximately 66%. Regardless, the future ROE for Bupa Arabia for Cooperative Insurance is predicted to rise to 24% despite there being not much change expected in its payout ratio.

Summary

On the whole, we do feel that Bupa Arabia for Cooperative Insurance has some positive attributes. Namely, its significant earnings growth, to which its moderate rate of return likely contributed. While the company is paying out most of its earnings as dividends, it has been able to grow its earnings in spite of it, so that's probably a good sign. Having said that, looking at the current analyst estimates, we found that the company's earnings are expected to gain momentum. To know more about the latest analysts predictions for the company, check out this visualization of analyst forecasts for the company.

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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.