Abu Dhabi Ports Company PJSC (ADX:ADPORTS) Stock's Been Sliding But Fundamentals Look Decent: Will The Market Correct The Share Price In The Future?

With its stock down 10% over the past three months, it is easy to disregard Abu Dhabi Ports Company PJSC (ADX:ADPORTS). However, the company's fundamentals look pretty decent, and long-term financials are usually aligned with future market price movements. In this article, we decided to focus on Abu Dhabi Ports Company PJSC's ROE.

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 short, ROE shows the profit each dollar generates with respect to its shareholder investments.

Check out our latest analysis for Abu Dhabi Ports Company PJSC

How To Calculate Return On Equity?

The formula for ROE is:

Return on Equity = Net Profit (from continuing operations) ÷ Shareholders' Equity

So, based on the above formula, the ROE for Abu Dhabi Ports Company PJSC is:

5.6% = د.إ1.4b ÷ د.إ25b (Based on the trailing twelve months to March 2024).

The 'return' is the yearly profit. So, this means that for every AED1 of its shareholder's investments, the company generates a profit of AED0.06.

What Has ROE Got To Do With 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. 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.

A Side By Side comparison of Abu Dhabi Ports Company PJSC's Earnings Growth And 5.6% ROE

As you can see, Abu Dhabi Ports Company PJSC's ROE looks pretty weak. Even when compared to the industry average of 8.2%, the ROE figure is pretty disappointing. In spite of this, Abu Dhabi Ports Company PJSC was able to grow its net income considerably, at a rate of 24% in the last five years. We reckon that there could be other factors at play here. 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.

As a next step, we compared Abu Dhabi Ports 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 7.4%.

Earnings growth is an important metric to consider when valuing a stock. What investors need to determine next is if the expected earnings growth, or the lack of it, is already built into the share price. This then helps them determine if the stock is placed for a bright or bleak future. Is ADPORTS fairly valued? This infographic on the company's intrinsic value has everything you need to know.

Is Abu Dhabi Ports Company PJSC Making Efficient Use Of Its Profits?

Abu Dhabi Ports Company PJSC doesn't pay any regular dividends 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.

Conclusion

Overall, we feel that Abu Dhabi Ports Company PJSC certainly does have some positive factors to consider. 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. On studying current analyst estimates, we found that analysts expect the company to continue its recent growth streak. 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com