Has AXA Green Crescent Insurance Company PJSC (ADX:AXAGCIC) Stock's Recent Performance Got Anything to Do With Its Financial Health?

AXA Green Crescent Insurance Company PJSC's (ADX:AXAGCIC) stock up by 3.0% 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. Particularly, we will be paying attention to AXA Green Crescent Insurance Company PJSC's ROE today.

Return on equity or ROE is an important factor to be considered by a shareholder because it tells them how effectively their capital is being reinvested. 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?

The formula for ROE is:

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' 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 AED0.04 in profit.

What Is The Relationship Between ROE And 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 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.

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

It is quite clear that AXA Green Crescent Insurance Company PJSC's ROE is rather low. Not just that, even compared to the industry average of 9.8%, the company's ROE is entirely unremarkable. In spite of this, AXA Green Crescent Insurance Company PJSC was able to grow its net income considerably, at a rate of 48% in the last five years. We believe that there might be other aspects that are positively influencing the company's earnings growth. 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 AXA Green Crescent Insurance Company PJSC's growth is quite high when compared to the industry average growth of 16% in the same period, which is great to see.

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. Is AXA Green Crescent Insurance Company PJSC fairly valued compared to other companies? These 3 valuation measures might help you decide.

Is AXA Green Crescent Insurance Company PJSC Making Efficient Use Of Its Profits?

Summary

In total, it does look like AXA Green Crescent Insurance Company PJSC has some positive aspects to its business. Even in spite of the low rate of return, the company has posted impressive earnings growth as a result of reinvesting heavily into its business. 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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