Declining Stock and Solid Fundamentals: Is The Market Wrong About Aldar Properties PJSC (ADX:ALDAR)?

It is hard to get excited after looking at Aldar Properties PJSC's (ADX:ALDAR) recent performance, when its stock has declined 9.4% over the past month. But if you pay close attention, you might gather that its strong financials could mean that the stock could potentially see an increase in value in the long-term, given how markets usually reward companies with good financial health. Specifically, we decided to study Aldar Properties PJSC's ROE in this article.

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. Simply put, it is used to assess the profitability of a company in relation to its equity capital.

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How Do You Calculate Return On Equity?

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 Aldar Properties PJSC is:

15% = د.إ6.5b ÷ د.إ43b (Based on the trailing twelve months to December 2024).

The 'return' is the income the business earned over the last year. Another way to think of that is that for every AED1 worth of equity, the company was able to earn AED0.15 in profit.

View our latest analysis for Aldar Properties PJSC

What Has ROE Got To Do With Earnings Growth?

Thus far, we have learned that ROE measures how efficiently a company is generating its profits. 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.

A Side By Side comparison of Aldar Properties PJSC's Earnings Growth And 15% ROE

It is hard to argue that Aldar Properties PJSC's ROE is much good in and of itself. Still, the company's ROE is higher than the average industry ROE of 9.0% so that's certainly interesting. Particularly, the substantial 23% net income growth seen by Aldar Properties PJSC over the past five years is impressive . Bear in mind, the company does have a low ROE. It is just that the industry ROE is lower. So there might well be other reasons for the earnings to grow. For instance, the company has a low payout ratio or is being managed efficiently

We then performed a comparison between Aldar Properties PJSC's net income growth with the industry, which revealed that the company's growth is similar to the average industry growth of 29% in the same 5-year period.

Earnings growth is an important metric to consider when valuing a stock. It’s important for an investor to know whether the market has priced in the company's expected earnings growth (or decline). Doing so will help them establish if the stock's future looks promising or ominous. Has the market priced in the future outlook for ALDAR? You can find out in our latest intrinsic value infographic research report.

Is Aldar Properties PJSC Using Its Retained Earnings Effectively?

The three-year median payout ratio for Aldar Properties PJSC is 38%, which is moderately low. The company is retaining the remaining 62%. By the looks of it, the dividend is well covered and Aldar Properties PJSC is reinvesting its profits efficiently as evidenced by its exceptional growth which we discussed above.

Besides, Aldar Properties PJSC has been paying dividends for at least ten years or more. This shows that the company is committed to sharing profits with its shareholders. Upon studying the latest analysts' consensus data, we found that the company's future payout ratio is expected to drop to 26% over the next three years. Despite the lower expected payout ratio, the company's ROE is not expected to change by much.

Summary

In total, we are pretty happy with Aldar Properties PJSC's performance. In particular, it's great to see that the company has seen significant growth in its earnings backed by a respectable ROE and a high reinvestment rate. 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 latest analysts predictions for the company, check out this visualization of analyst forecasts for the company.

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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.