Is Al Meera Consumer Goods Company Q.P.S.C.'s (DSM:MERS) Stock On A Downtrend As A Result Of Its Poor Financials?

It is hard to get excited after looking at Al Meera Consumer Goods Company Q.P.S.C's (DSM:MERS) recent performance, when its stock has declined 5.9% over the past week. To decide if this trend could continue, we decided to look at its weak fundamentals as they shape the long-term market trends. Specifically, we decided to study Al Meera Consumer Goods Company Q.P.S.C's ROE in this article.

Return on Equity or ROE is a test of how effectively a company is growing its value and managing investors’ money. In short, ROE shows the profit each dollar generates with respect to its shareholder investments.

Our free stock report includes 1 warning sign investors should be aware of before investing in Al Meera Consumer Goods Company Q.P.S.C. Read for free now.

How Do You Calculate Return On Equity?

The formula for return on equity is:

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

So, based on the above formula, the ROE for Al Meera Consumer Goods Company Q.P.S.C is:

11% = ر.ق183m ÷ ر.ق1.7b (Based on the trailing twelve months to December 2024).

The 'return' is the profit over the last twelve months. Another way to think of that is that for every QAR1 worth of equity, the company was able to earn QAR0.11 in profit.

See our latest analysis for Al Meera Consumer Goods Company Q.P.S.C

Why Is ROE Important For 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.

Al Meera Consumer Goods Company Q.P.S.C's Earnings Growth And 11% ROE

It is quite clear that Al Meera Consumer Goods Company Q.P.S.C's ROE is rather low. Further, we noted that the company's ROE is similar to the industry average of 9.7%. Al Meera Consumer Goods Company Q.P.S.C's flat earnings over the past five years can possibly be explained by the low ROE amongst other factors.

As a next step, we compared Al Meera Consumer Goods Company Q.P.S.C's net income growth with the industry and discovered that the industry saw an average growth of 11% in the same period.

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. Doing so will help them establish if the stock's future looks promising or ominous. Has the market priced in the future outlook for MERS? You can find out in our latest intrinsic value infographic research report

Is Al Meera Consumer Goods Company Q.P.S.C Efficiently Re-investing Its Profits?

Al Meera Consumer Goods Company Q.P.S.C has a high three-year median payout ratio of 95% (or a retention ratio of 5.4%), meaning that the company is paying most of its profits as dividends to its shareholders. This does go some way in explaining why there's been no growth in its earnings.

Additionally, Al Meera Consumer Goods Company Q.P.S.C has paid dividends over a period of at least ten years, which means that the company's management is determined to pay dividends even if it means little to no earnings growth. Upon studying the latest analysts' consensus data, we found that the company's future payout ratio is expected to rise to 882% over the next three years. Despite the higher expected payout ratio, the company's ROE is not expected to change by much.

Conclusion

Overall, we would be extremely cautious before making any decision on Al Meera Consumer Goods Company Q.P.S.C. Particularly, its ROE is a huge disappointment, not to mention its lack of proper reinvestment into the business. As a result its earnings growth has also been quite disappointing. With that said, we studied the latest analyst forecasts and found that while the company has shrunk its earnings in the past, analysts expect its earnings to grow in the future. 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.

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

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.