Declining Stock and Solid Fundamentals: Is The Market Wrong About Burjeel Holdings PLC (ADX:BURJEEL)?

It is hard to get excited after looking at Burjeel Holdings' (ADX:BURJEEL) 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 Burjeel Holdings' ROE in this article.

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

View our latest analysis for Burjeel Holdings

How Is ROE Calculated?

The formula for ROE is:

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

So, based on the above formula, the ROE for Burjeel Holdings is:

29% = د.إ485m ÷ د.إ1.7b (Based on the trailing twelve months to June 2024).

The 'return' is the income the business earned over the last year. So, this means that for every AED1 of its shareholder's investments, the company generates a profit of AED0.29.

What Is The Relationship Between ROE And Earnings Growth?

So far, we've learned that ROE is a measure of a company's profitability. 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. 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 Burjeel Holdings' Earnings Growth And 29% ROE

To begin with, Burjeel Holdings seems to have a respectable ROE. Further, the company's ROE compares quite favorably to the industry average of 9.7%. Probably as a result of this, Burjeel Holdings was able to see an impressive net income growth of 44% over the last five years. We believe that there might also be other aspects that are positively influencing the company's earnings growth. For instance, the company has a low payout ratio or is being managed efficiently.

Next, on comparing with the industry net income growth, we found that Burjeel Holdings' growth is quite high when compared to the industry average growth of 12% 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. 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 Burjeel Holdings''s valuation, check out this gauge of its price-to-earnings ratio, as compared to its industry.

Is Burjeel Holdings Efficiently Re-investing Its Profits?

The three-year median payout ratio for Burjeel Holdings is 26%, which is moderately low. The company is retaining the remaining 74%. By the looks of it, the dividend is well covered and Burjeel Holdings is reinvesting its profits efficiently as evidenced by its exceptional growth which we discussed above.

While Burjeel Holdings has been growing its earnings, it only recently started to pay dividends which likely means that the company decided to impress new and existing shareholders with a dividend.

Conclusion

On the whole, we feel that Burjeel Holdings' performance has been quite good. In particular, it's great to see that the company is investing heavily into its business and along with a high rate of return, that has resulted in a sizeable growth in its earnings. Having said that, the company's earnings growth is expected to slow down, as forecasted in the current analyst estimates. 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.

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.