Are HAYAH Insurance Company P.J.S.C.'s (ADX:HAYAH) Fundamentals Good Enough to Warrant Buying Given The Stock's Recent Weakness?

It is hard to get excited after looking at HAYAH Insurance Company P.J.S.C's (ADX:HAYAH) recent performance, when its stock has declined 15% over the past three months. But if you pay close attention, you might find that its key financial indicators look quite decent, which could mean that the stock could potentially rise in the long-term given how markets usually reward more resilient long-term fundamentals. In this article, we decided to focus on HAYAH Insurance Company P.J.S.C's ROE.

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 HAYAH Insurance Company P.J.S.C

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 HAYAH Insurance Company P.J.S.C is:

2.7% = د.إ3.3m ÷ د.إ123m (Based on the trailing twelve months to December 2022).

The 'return' refers to a company's earnings over the last year. So, this means that for every AED1 of its shareholder's investments, the company generates a profit of AED0.03.

What Has ROE Got To Do With 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.

HAYAH Insurance Company P.J.S.C's Earnings Growth And 2.7% ROE

It is quite clear that HAYAH Insurance Company P.J.S.C's ROE is rather low. Even when compared to the industry average of 6.5%, the ROE figure is pretty disappointing. Despite this, surprisingly, HAYAH Insurance Company P.J.S.C saw an exceptional 74% net income growth over the past five years. We believe that there might be other aspects that are positively influencing the company's earnings growth. Such as - high earnings retention or an efficient management in place.

We then compared HAYAH Insurance Company P.J.S.C's net income growth with the industry and we're pleased to see that the company's growth figure is higher when compared with the industry which has a growth rate of 11% in the same period.

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. Is HAYAH Insurance Company P.J.S.C fairly valued compared to other companies? These 3 valuation measures might help you decide.

Is HAYAH Insurance Company P.J.S.C Efficiently Re-investing Its Profits?

HAYAH Insurance Company P.J.S.C doesn't pay any dividend currently which essentially means that it has been reinvesting all of its profits into the business. This definitely contributes to the high earnings growth number that we discussed above.

Summary

Overall, we feel that HAYAH Insurance Company P.J.S.C certainly does have some positive factors to consider. 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. Our risks dashboard would have the 3 risks we have identified for HAYAH Insurance Company P.J.S.C.

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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.