Dubai Refreshment (P.J.S.C.) (DFM:DRC) Stock's Been Sliding But Fundamentals Look Decent: Will The Market Correct The Share Price In The Future?

It is hard to get excited after looking at Dubai Refreshment (P.J.S.C.)'s (DFM:DRC) recent performance, when its stock has declined 27% over the past month. However, the company's fundamentals look pretty decent, and long-term financials are usually aligned with future market price movements. Particularly, we will be paying attention to Dubai Refreshment (P.J.S.C.)'s ROE today.

Return on Equity or ROE is a test of how effectively a company is growing its value and managing investors’ money. 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 Is ROE Calculated?

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 Dubai Refreshment (P.J.S.C.) is:

14% = د.إ140m ÷ د.إ1.0b (Based on the trailing twelve months to March 2025).

The 'return' is the yearly profit. That means that for every AED1 worth of shareholders' equity, the company generated AED0.14 in profit.

View our latest analysis for Dubai Refreshment (P.J.S.C.)

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. 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.

Dubai Refreshment (P.J.S.C.)'s Earnings Growth And 14% ROE

It is quite clear that Dubai Refreshment (P.J.S.C.)'s ROE is rather low. An industry comparison shows that the company's ROE is not much different from the industry average of 14% either. Moreover, we are quite pleased to see that Dubai Refreshment (P.J.S.C.)'s net income grew significantly at a rate of 28% over the last five years. We reckon that there could also be other factors at play thats influencing the company's growth. Such as - high earnings retention or an efficient management in place.

Next, on comparing with the industry net income growth, we found that Dubai Refreshment (P.J.S.C.)'s growth is quite high when compared to the industry average growth of 21% in the same period, which is great to see.

Earnings growth is a huge factor in stock valuation. The investor should try to establish if the expected growth or decline in earnings, whichever the case may be, is priced in. Doing so will help them establish if the stock's future looks promising or ominous. If you're wondering about Dubai Refreshment (P.J.S.C.)'s's valuation, check out this gauge of its price-to-earnings ratio, as compared to its industry.

Is Dubai Refreshment (P.J.S.C.) Efficiently Re-investing Its Profits?

Dubai Refreshment (P.J.S.C.)'s significant three-year median payout ratio of 58% (where it is retaining only 42% of its income) suggests that the company has been able to achieve a high growth in earnings despite returning most of its income to shareholders.

Moreover, Dubai Refreshment (P.J.S.C.) is determined to keep sharing its profits with shareholders which we infer from its long history of paying a dividend for at least ten years.

Conclusion

In total, it does look like Dubai Refreshment (P.J.S.C.) has some positive aspects to its business. Namely, its high earnings growth. We do however feel that the earnings growth number could have been even higher, had the company been reinvesting more of its earnings and paid out less dividends. Up till now, we've only made a short study of the company's growth data. So it may be worth checking this free detailed graph of Dubai Refreshment (P.J.S.C.)'s past earnings, as well as revenue and cash flows to get a deeper insight into the company's performance.

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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.