Is Industries Qatar Q.P.S.C.'s (DSM:IQCD) Stock Price Struggling As A Result Of Its Mixed Financials?

Industries Qatar Q.P.S.C (DSM:IQCD) has had a rough three months with its share price down 3.0%. It seems that the market might have completely ignored the positive aspects of the company's fundamentals and decided to weigh-in more on the negative aspects. Fundamentals usually dictate market outcomes so it makes sense to study the company's financials. Specifically, we decided to study Industries Qatar Q.P.S.C'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?

The formula for ROE is:

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

So, based on the above formula, the ROE for Industries Qatar Q.P.S.C is:

12% = ر.ق4.3b ÷ ر.ق37b (Based on the trailing twelve months to March 2025).

The 'return' is the amount earned after tax over the last twelve months. One way to conceptualize this is that for each QAR1 of shareholders' capital it has, the company made QAR0.12 in profit.

See our latest analysis for Industries Qatar Q.P.S.C

What Has ROE Got To Do With Earnings Growth?

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

Industries Qatar Q.P.S.C's Earnings Growth And 12% ROE

As you can see, Industries Qatar Q.P.S.C's ROE looks pretty weak. A comparison with the industry shows that the company's ROE is pretty similar to the average industry ROE of 12%. As a result, Industries Qatar Q.P.S.C's decent 8.7% net income growth seen over the past five years bodes well with us. Given the low ROE, it is likely that there could be some other aspects that are driving this growth as well. 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.

We then performed a comparison between Industries Qatar Q.P.S.C's net income growth with the industry, which revealed that the company's growth is similar to the average industry growth of 9.8% in the same 5-year period.

Earnings growth is a huge factor in stock valuation. 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 Industries Qatar Q.P.S.C fairly valued compared to other companies? These 3 valuation measures might help you decide.

Is Industries Qatar Q.P.S.C Using Its Retained Earnings Effectively?

The high three-year median payout ratio of 100% (or a retention ratio of 0.3%) for Industries Qatar Q.P.S.C suggests that the company's growth wasn't really hampered despite it returning most of its income to its shareholders.

Moreover, Industries Qatar Q.P.S.C is determined to keep sharing its profits with shareholders which we infer from its long history of paying a dividend for at least ten years. Based on the latest analysts' estimates, we found that the company's future payout ratio over the next three years is expected to hold steady at 101%. Therefore, the company's future ROE is also not expected to change by much with analysts predicting an ROE of 14%.

Summary

Overall, we have mixed feelings about Industries Qatar Q.P.S.C. While no doubt its earnings growth is pretty substantial, its ROE and earnings retention is quite poor. So while the company has managed to grow its earnings in spite of this, we are unconvinced if this growth could extend, especially during troubled times. 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 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.