Are Abu Dhabi Ports Company PJSC's (ADX:ADPORTS) Fundamentals Good Enough to Warrant Buying Given The Stock's Recent Weakness?

Abu Dhabi Ports Company PJSC (ADX:ADPORTS) has had a rough month with its share price down 7.6%. However, stock prices are usually driven by a company’s financials over the long term, which in this case look pretty respectable. Specifically, we decided to study Abu Dhabi Ports Company 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. In short, ROE shows the profit each dollar generates with respect to its shareholder investments.

See 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.إ1.6b ÷ د.إ28b (Based on the trailing twelve months to September 2024).

The 'return' is the amount earned after tax over the last twelve months. Another way to think of that is that for every AED1 worth of equity, the company was able to earn AED0.06 in profit.

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. 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.

Abu Dhabi Ports Company PJSC's Earnings Growth And 5.6% ROE

It is quite clear that Abu Dhabi Ports Company PJSC's ROE is rather low. Even when compared to the industry average of 8.2%, the ROE figure is pretty disappointing. Abu Dhabi Ports Company PJSC was still able to see a decent net income growth of 18% over the past five years. We reckon that there could be other factors at play here. Such as - high earnings retention or an efficient management in place.

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 10%.

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. If you're wondering about Abu Dhabi Ports Company PJSC's's valuation, check out this gauge of its price-to-earnings ratio, as compared to its industry.

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

Given that Abu Dhabi Ports Company PJSC doesn't pay any regular dividends to its shareholders, we infer that the company has been reinvesting all of its profits to grow its business.

Conclusion

In total, it does look like Abu Dhabi Ports Company PJSC has some positive aspects to its business. 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. On studying current analyst estimates, we found that analysts expect the company to continue its recent growth streak. 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.