Is Alpha Dhabi Holding PJSC's (ADX:ALPHADHABI) Stock's Recent Performance A Reflection Of Its Financial Health?

Alpha Dhabi Holding PJSC's (ADX:ALPHADHABI) stock is up by 4.9% over the past week. Given that the market rewards strong financials in the long-term, we wonder if that is the case in this instance. In this article, we decided to focus on Alpha Dhabi Holding PJSC's ROE.

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 other words, it is a profitability ratio which measures the rate of return on the capital provided by the company's shareholders.

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How To 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 Alpha Dhabi Holding PJSC is:

15% = د.إ14b ÷ د.إ92b (Based on the trailing twelve months to December 2024).

The 'return' refers to a company's earnings over the last year. So, this means that for every AED1 of its shareholder's investments, the company generates a profit of AED0.15.

See our latest analysis for Alpha Dhabi Holding PJSC

Why Is ROE Important For Earnings Growth?

So far, we've learned that ROE is a measure of a company's profitability. 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. Generally speaking, other things being equal, firms with a high return on equity and profit retention, have a higher growth rate than firms that don’t share these attributes.

A Side By Side comparison of Alpha Dhabi Holding PJSC's Earnings Growth And 15% ROE

It is hard to argue that Alpha Dhabi Holding PJSC's ROE is much good in and of itself. However, the fact that it is higher than the industry average of 11% makes us a bit more interested. Especially when you consider Alpha Dhabi Holding PJSC's exceptional 37% net income growth over the past five years. Bear in mind, the company does have a low ROE. It is just that the industry ROE is lower. Hence, there might be some other aspects that are causing earnings to grow. 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 37% 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). By doing so, they will have an idea if the stock is headed into clear blue waters or if swampy waters await. Is ALPHADHABI fairly valued? This infographic on the company's intrinsic value has everything you need to know.

Is Alpha Dhabi Holding PJSC Making Efficient Use Of Its Profits?

Alpha Dhabi Holding PJSC has a three-year median payout ratio of 28% (where it is retaining 72% of its income) which is not too low or not too high. By the looks of it, the dividend is well covered and Alpha Dhabi Holding PJSC is reinvesting its profits efficiently as evidenced by its exceptional growth which we discussed above.

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.

Summary

On the whole, we feel that Alpha Dhabi Holding PJSC's performance has been quite good. 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. That being so, according to the latest industry analyst forecasts, the company's earnings are expected to shrink in the future. To know more about the company's future earnings growth forecasts take a look at this free report on analyst forecasts for the company to find out more.

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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.