Declining Stock and Solid Fundamentals: Is The Market Wrong About NMDC Energy - P.J.S.C. (ADX:NMDCENR)?

It is hard to get excited after looking at NMDC Energy - P.J.S.C's (ADX:NMDCENR) recent performance, when its stock has declined 13% over the past three months. However, stock prices are usually driven by a company’s financial performance over the long term, which in this case looks quite promising. Specifically, we decided to study NMDC Energy - P.J.S.C's ROE in this article.

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 simpler terms, it measures the profitability of a company in relation to shareholder's equity.

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How To Calculate Return On Equity?

The formula for return on equity is:

Return on Equity = Net Profit (from continuing operations) ÷ Shareholders' Equity

So, based on the above formula, the ROE for NMDC Energy - P.J.S.C is:

30% = د.إ1.4b ÷ د.إ4.8b (Based on the trailing twelve months to March 2025).

The 'return' refers to a company's earnings over the last year. One way to conceptualize this is that for each AED1 of shareholders' capital it has, the company made AED0.30 in profit.

See our latest analysis for NMDC Energy - 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.

NMDC Energy - P.J.S.C's Earnings Growth And 30% ROE

At first glance, NMDC Energy - P.J.S.C seems to have a decent ROE. On comparing with the average industry ROE of 8.5% the company's ROE looks pretty remarkable. This probably laid the ground for NMDC Energy - P.J.S.C's significant 48% net income growth seen over the past five years. We reckon that there could also be other factors at play here. For example, it is possible that the company's management has made some good strategic decisions, or that the company has a low payout ratio.

Next, on comparing with the industry net income growth, we found that NMDC Energy - P.J.S.C's growth is quite high when compared to the industry average growth of 23% in the same period, which is great to see.

Earnings growth is an important metric to consider when valuing a stock. 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 NMDC Energy - P.J.S.C's's valuation, check out this gauge of its price-to-earnings ratio, as compared to its industry.

Is NMDC Energy - P.J.S.C Efficiently Re-investing Its Profits?

NMDC Energy - P.J.S.C's three-year median payout ratio to shareholders is 22%, which is quite low. This implies that the company is retaining 78% of its profits. So it looks like NMDC Energy - P.J.S.C is reinvesting profits heavily to grow its business, which shows in its earnings growth.

Upon studying the latest analysts' consensus data, we found that the company's future payout ratio is expected to rise to 33% over the next three years. Accordingly, the expected increase in the payout ratio explains the expected decline in the company's ROE to 21%, over the same period.

Summary

Overall, we are quite pleased with NMDC Energy - P.J.S.C's performance. Particularly, we like that the company is reinvesting heavily into its business, and at a high rate of return. Unsurprisingly, this has led to an impressive earnings growth. With that said, the latest industry analyst forecasts reveal that the company's earnings growth is expected to slow down. 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.