ADNOC Drilling Company P.J.S.C.'s (ADX:ADNOCDRILL) Fundamentals Look Pretty Strong: Could The Market Be Wrong About The Stock?

With its stock down 4.7% over the past month, it is easy to disregard ADNOC Drilling Company P.J.S.C (ADX:ADNOCDRILL). 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 ADNOC Drilling Company P.J.S.C's ROE today.

Return on equity or ROE is a key measure used to assess how efficiently a company's management is utilizing the company's capital. 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 ADNOC Drilling Company P.J.S.C is:

37% = US$1.4b ÷ US$3.9b (Based on the trailing twelve months to June 2025).

The 'return' is the income the business earned over the last year. One way to conceptualize this is that for each AED1 of shareholders' capital it has, the company made AED0.37 in profit.

View our latest analysis for ADNOC Drilling Company P.J.S.C

What Has ROE Got To Do With Earnings Growth?

So far, we've learned that ROE is a measure of a company's profitability. 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 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.

ADNOC Drilling Company P.J.S.C's Earnings Growth And 37% ROE

Firstly, we acknowledge that ADNOC Drilling Company P.J.S.C has a significantly high ROE. Additionally, the company's ROE is higher compared to the industry average of 8.6% which is quite remarkable. As a result, ADNOC Drilling Company P.J.S.C's exceptional 23% net income growth seen over the past five years, doesn't come as a surprise.

Next, on comparing ADNOC Drilling Company P.J.S.C's net income growth with the industry, we found that the company's reported growth is similar to the industry average growth rate of 20% over the last few years.

Earnings growth is a huge factor in stock valuation. 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. Has the market priced in the future outlook for ADNOCDRILL? You can find out in our latest intrinsic value infographic research report.

Is ADNOC Drilling Company P.J.S.C Using Its Retained Earnings Effectively?

ADNOC Drilling Company P.J.S.C's significant three-year median payout ratio of 73% (where it is retaining only 27% 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.

Besides, ADNOC Drilling Company P.J.S.C has been paying dividends over a period of four years. This shows that the company is committed to sharing profits with its shareholders. Based on the latest analysts' estimates, we found that the company's future payout ratio over the next three years is expected to hold steady at 66%. As a result, ADNOC Drilling Company P.J.S.C's ROE is not expected to change by much either, which we inferred from the analyst estimate of 31% for future ROE.

Conclusion

Overall, we are quite pleased with ADNOC Drilling Company P.J.S.C's performance. We are particularly impressed by the considerable earnings growth posted by the company, which was likely backed by its high ROE. While the company is paying out most of its earnings as dividends, it has been able to grow its earnings in spite of it, so that's probably a good sign. That being so, a study of the latest analyst forecasts show that the company is expected to see a slowdown in its future earnings growth. 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.

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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.