Is Taaleem Holdings PJSC's (DFM:TAALEEM) Recent Stock Performance Influenced By Its Fundamentals In Any Way?

Taaleem Holdings PJSC's (DFM:TAALEEM) stock is up by a considerable 5.8% over the past week. As most would know, fundamentals are what usually guide market price movements over the long-term, so we decided to look at the company's key financial indicators today to determine if they have any role to play in the recent price movement. In this article, we decided to focus on Taaleem Holdings 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 short, ROE shows the profit each dollar generates with respect to its shareholder investments.

See our latest analysis for Taaleem Holdings PJSC

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 Taaleem Holdings PJSC is:

7.0% = د.إ113m ÷ د.إ1.6b (Based on the trailing twelve months to November 2023).

The 'return' is the yearly profit. One way to conceptualize this is that for each AED1 of shareholders' capital it has, the company made AED0.07 in profit.

What Has ROE Got To Do With Earnings Growth?

We have already established that ROE serves as an efficient profit-generating gauge for a company's future earnings. Depending on how much of these profits the company reinvests or "retains", and how effectively it does so, we are then able to assess a company’s earnings growth potential. 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.

Taaleem Holdings PJSC's Earnings Growth And 7.0% ROE

It is hard to argue that Taaleem Holdings PJSC's ROE is much good in and of itself. Even when compared to the industry average of 11%, the ROE figure is pretty disappointing. Although, we can see that Taaleem Holdings PJSC saw a modest net income growth of 14% over the past five years. We believe that there might be other aspects that are positively influencing the company's earnings growth. Such as - high earnings retention or an efficient management in place.

Next, on comparing with the industry net income growth, we found that Taaleem Holdings PJSC's growth is quite high when compared to the industry average growth of 8.7% in the same period, which is great to see.

The basis for attaching value to a company is, to a great extent, tied to its earnings growth. 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. Is Taaleem Holdings PJSC fairly valued compared to other companies? These 3 valuation measures might help you decide.

Is Taaleem Holdings PJSC Efficiently Re-investing Its Profits?

Taaleem Holdings PJSC has a significant three-year median payout ratio of 81%, meaning that it is left with only 19% to reinvest into its business. This implies that the company has been able to achieve decent earnings growth despite returning most of its profits to shareholders.

Conclusion

On the whole, we do feel that Taaleem Holdings PJSC has some positive attributes. While no doubt its earnings growth is pretty substantial, we do feel that the reinvestment rate is pretty low, meaning, the earnings growth number could have been significantly higher had the company been retaining more of its profits. With that said, the latest industry analyst forecasts reveal that the company's earnings growth is expected to slow down. Are these analysts expectations based on the broad expectations for the industry, or on the company's fundamentals? Click here to be taken to our analyst's forecasts page for the company.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.