Emaar Properties PJSC (DFM:EMAAR) Stock's Been Sliding But Fundamentals Look Decent: Will The Market Correct The Share Price In The Future?

It is hard to get excited after looking at Emaar Properties PJSC's (DFM:EMAAR) recent performance, when its stock has declined 14% over the past month. 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. Specifically, we decided to study Emaar Properties 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 simpler terms, it measures the profitability of a company in relation to shareholder's equity.

See our latest analysis for Emaar Properties PJSC

How To Calculate Return On Equity?

ROE 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 Emaar Properties PJSC is:

11% = د.إ8.8b ÷ د.إ78b (Based on the trailing twelve months to June 2023).

The 'return' is the income the business earned over the last year. That means that for every AED1 worth of shareholders' equity, the company generated AED0.11 in profit.

What Is The Relationship Between ROE And Earnings Growth?

We have already established that ROE serves as an efficient profit-generating gauge for a company's future earnings. 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. 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.

Emaar Properties PJSC's Earnings Growth And 11% ROE

It is quite clear that Emaar Properties PJSC's ROE is rather low. However, when compared to the industry average of 8.9%, we do feel there's definitely more to the company. Still, Emaar Properties PJSC has seen a flat net income growth over the past five years. Bear in mind, the company does have a low ROE. It is just that the industry ROE is lower. Hence, this goes some way in explaining the disappointing earnings growth.

As a next step, we compared Emaar Properties PJSC's net income growth with the industry and found that the company has a similar growth figure when compared with the industry average growth rate of 1.9% 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). This then helps them determine if the stock is placed for a bright or bleak future. One good indicator of expected earnings growth is the P/E ratio which determines the price the market is willing to pay for a stock based on its earnings prospects. So, you may want to check if Emaar Properties PJSC is trading on a high P/E or a low P/E, relative to its industry.

Is Emaar Properties PJSC Making Efficient Use Of Its Profits?

In spite of a normal three-year median payout ratio of 29% (or a retention ratio of 71%), Emaar Properties PJSC hasn't seen much growth in its earnings. So there might be other factors at play here which could potentially be hampering growth. For example, the business has faced some headwinds.

In addition, Emaar Properties PJSC has been paying dividends over a period of at least ten years suggesting that keeping up dividend payments is way more important to the management even if it comes at the cost of business growth. Upon studying the latest analysts' consensus data, we found that the company is expected to keep paying out approximately 24% of its profits over the next three years. Accordingly, forecasts suggest that Emaar Properties PJSC's future ROE will be 9.7% which is again, similar to the current ROE.

Conclusion

In total, it does look like Emaar Properties PJSC has some positive aspects to its business. In particular, it's great to see that the company is investing heavily into its business and along with a moderate rate of return, that has resulted in a respectable growth in its earnings. That being so, a study of the latest analyst forecasts show that the company is expected to see a slowdown in its future earnings growth. 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.

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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.