Alpha Dhabi Holding PJSC's (ADX:ALPHADHABI) Fundamentals Look Pretty Strong: Could The Market Be Wrong About The Stock?

Alpha Dhabi Holding PJSC (ADX:ALPHADHABI) has had a rough three months with its share price down 15%. However, a closer look at its sound financials might cause you to think again. Given that fundamentals usually drive long-term market outcomes, the company is worth looking at. Particularly, we will be paying attention to Alpha Dhabi Holding PJSC's ROE today.

Return on Equity or ROE is a test of how effectively a company is growing its value and managing investors’ money. Simply put, it is used to assess the profitability of a company in relation to its equity capital.

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How To Calculate Return On Equity?

The formula for ROE is:

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

So, based on the above formula, the ROE for Alpha Dhabi Holding PJSC is:

14% = د.إ13b ÷ د.إ98b (Based on the trailing twelve months to June 2025).

The 'return' is the yearly profit. So, this means that for every AED1 of its shareholder's investments, the company generates a profit of AED0.14.

View our latest analysis for Alpha Dhabi Holding PJSC

What Is The Relationship Between ROE And Earnings Growth?

We have already established that ROE serves as an efficient profit-generating gauge for a company's future earnings. Based on how much of its profits the company chooses to reinvest or "retain", we are then able to evaluate a company's future ability to generate profits. 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.

A Side By Side comparison of Alpha Dhabi Holding PJSC's Earnings Growth And 14% ROE

It is hard to argue that Alpha Dhabi Holding PJSC's ROE is much good in and of itself. However, when compared to the industry average of 9.1%, we do feel there's definitely more to the company. Particularly, the substantial 26% net income growth seen by Alpha Dhabi Holding PJSC over the past five years is impressive . That being said, the company does have a low ROE to begin with, just that its higher than the industry average. Therefore, the growth in earnings could also be the result of other factors. Such as high earnings retention or an efficient management in place.

We then performed a comparison between Alpha Dhabi Holding PJSC's net income growth with the industry, which revealed that the company's growth is similar to the average industry growth of 26% in the same 5-year period.

Earnings growth is an important metric to consider when valuing a stock. It’s important for an investor to know whether the market has priced in the company's expected earnings growth (or decline). Doing so will help them establish if the stock's future looks promising or ominous. One 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 prospects. So, you may want to check if Alpha Dhabi Holding PJSC is trading on a high P/E or a low P/E, relative to its industry.

Is Alpha Dhabi Holding PJSC Efficiently Re-investing Its Profits?

Alpha Dhabi Holding PJSC's three-year median payout ratio is a pretty moderate 29%, meaning the company retains 71% of its income. This suggests that its dividend is well covered, and given the high growth we discussed above, it looks like Alpha Dhabi Holding PJSC is reinvesting its earnings efficiently.

While Alpha Dhabi Holding PJSC has seen growth in its earnings, it only recently started to pay a dividend. It is most likely that the company decided to impress new and existing shareholders with a dividend.

Conclusion

In total, we are pretty happy with Alpha Dhabi Holding PJSC's performance. In particular, it's great to see that the company has seen significant growth in its earnings backed by a respectable ROE and a high reinvestment rate.

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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.