Ghitha Holding P.J.S.C's (ADX:GHITHA) Stock Has Shown Weakness Lately But Financial Prospects Look Decent: Is The Market Wrong?

It is hard to get excited after looking at Ghitha Holding P.J.S.C's (ADX:GHITHA) recent performance, when its stock has declined 28% over the past three months. But if you pay close attention, you might find that its key financial indicators look quite decent, which could mean that the stock could potentially rise in the long-term given how markets usually reward more resilient long-term fundamentals. Specifically, we decided to study Ghitha Holding P.J.S.C's ROE in this article.

Return on Equity or ROE is a test of how effectively a company is growing its value and managing investors’ money. Put another way, it reveals the company's success at turning shareholder investments into profits.

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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 Ghitha Holding P.J.S.C is:

3.2% = د.إ218m ÷ د.إ6.9b (Based on the trailing twelve months to September 2025).

The 'return' refers to a company's earnings over the last year. That means that for every AED1 worth of shareholders' equity, the company generated AED0.03 in profit.

See our latest analysis for Ghitha Holding P.J.S.C

What Has ROE Got To Do With Earnings Growth?

Thus far, we have learned that ROE measures how efficiently a company is generating its profits. 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 everything else remains unchanged, the higher the ROE and profit retention, the higher the growth rate of a company compared to companies that don't necessarily bear these characteristics.

A Side By Side comparison of Ghitha Holding P.J.S.C's Earnings Growth And 3.2% ROE

It is hard to argue that Ghitha Holding P.J.S.C's ROE is much good in and of itself. Even compared to the average industry ROE of 14%, the company's ROE is quite dismal. Despite this, surprisingly, Ghitha Holding P.J.S.C saw an exceptional 53% net income growth over the past five years. Therefore, there could be other reasons behind this growth. Such as - high earnings retention or an efficient management in place.

As a next step, we compared Ghitha Holding P.J.S.C's net income growth with the industry, and pleasingly, we found that the growth seen by the company is higher than the average industry growth of 17%.

Earnings growth is a huge factor in stock valuation. What investors need to determine next is if the expected earnings growth, or the lack of it, is already built into the share price. Doing so will help them establish if the stock's future looks promising or ominous. If you're wondering about Ghitha Holding P.J.S.C's's valuation, check out this gauge of its price-to-earnings ratio, as compared to its industry.

Is Ghitha Holding P.J.S.C Making Efficient Use Of Its Profits?

Ghitha Holding P.J.S.C doesn't pay any regular dividends currently which essentially means that it has been reinvesting all of its profits into the business. This definitely contributes to the high earnings growth number that we discussed above.

Summary

In total, it does look like Ghitha Holding P.J.S.C has some positive aspects to its business. Despite its low rate of return, the fact that the company reinvests a very high portion of its profits into its business, no doubt contributed to its high earnings growth. While we won't completely dismiss the company, what we would do, is try to ascertain how risky the business is to make a more informed decision around the company. You can see the 2 risks we have identified for Ghitha Holding P.J.S.C by visiting our risks dashboard for free on our platform here.

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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.