AXA Green Crescent Insurance Company PJSC's (ADX:AXAGCIC) Stock Has Seen Strong Momentum: Does That Call For Deeper Study Of Its Financial Prospects?

AXA Green Crescent Insurance Company PJSC's (ADX:AXAGCIC) stock is up by a considerable 21% over the past three months. We wonder if and what role the company's financials play in that price change as a company's long-term fundamentals usually dictate market outcomes. Specifically, we decided to study AXA Green Crescent Insurance Company PJSC's 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 other words, it is a profitability ratio which measures the rate of return on the capital provided by the company's shareholders.

View our latest analysis for AXA Green Crescent Insurance Company PJSC

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 AXA Green Crescent Insurance Company PJSC is:

4.1% = د.إ5.2m ÷ د.إ125m (Based on the trailing twelve months to September 2020).

The 'return' is the profit over the last twelve months. So, this means that for every AED1 of its shareholder's investments, the company generates a profit of AED0.04.

Why Is ROE Important For Earnings Growth?

So far, we've learned that ROE is a measure of a company's profitability. Based on how much of its profits the company chooses to reinvest or "retain", we are then able to evaluate a company's future ability to generate profits. 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.

AXA Green Crescent Insurance Company PJSC's Earnings Growth And 4.1% ROE

As you can see, AXA Green Crescent Insurance Company PJSC's ROE looks pretty weak. Even compared to the average industry ROE of 8.7%, the company's ROE is quite dismal. However, we we're pleasantly surprised to see that AXA Green Crescent Insurance Company PJSC grew its net income at a significant rate of 48% in the last five years. We reckon that there could be other factors at play here. Such as - high earnings retention or an efficient management in place.

As a next step, we compared AXA Green Crescent Insurance Company PJSC's net income growth with the industry, and pleasingly, we found that the growth seen by the company is higher than the average industry growth of 14%.

Earnings growth is a huge factor in stock valuation. What investors need to determine next is if the expected earnings growth, or the lack of it, is already built into the share price. By doing so, they will have an idea if the stock is headed into clear blue waters or if swampy waters await. If you're wondering about AXA Green Crescent Insurance Company PJSC's's valuation, check out this gauge of its price-to-earnings ratio, as compared to its industry.

Is AXA Green Crescent Insurance Company PJSC Using Its Retained Earnings Effectively?

Summary

In total, it does look like AXA Green Crescent Insurance Company PJSC has some positive aspects to its business. Despite its low rate of return, the fact that the company reinvests a very high portion of its profits into its business, no doubt contributed to its high earnings growth. While we won't completely dismiss the company, what we would do, is try to ascertain how risky the business is to make a more informed decision around the company. To know the 1 risk we have identified for AXA Green Crescent Insurance Company PJSC visit our risks dashboard for free.

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This article by Simply Wall St is general in nature. 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.
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