Qatar Fuel Company Q.P.S.C. ("WOQOD") (DSM:QFLS) Is Up But Financials Look Inconsistent: Which Way Is The Stock Headed?

Qatar Fuel Company Q.P.S.C. (WOQOD)'s (DSM:QFLS) stock up by 4.4% over the past three months. Given that the stock prices usually follow long-term business performance, we wonder if the company's mixed financials could have any adverse effect on its current price price movement Particularly, we will be paying attention to Qatar Fuel Company Q.P.S.C. (WOQOD)'s ROE today.

ROE or return on equity is a useful tool to assess how effectively a company can generate returns on the investment it received from its shareholders. Simply put, it is used to assess the profitability of a company in relation to its equity capital.

Trump has pledged to "unleash" American oil and gas and these 15 US stocks have developments that are poised to benefit.

How To Calculate Return On Equity?

Return on equity 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 Qatar Fuel Company Q.P.S.C. (WOQOD) is:

12% = ر.ق1.1b ÷ ر.ق8.9b (Based on the trailing twelve months to June 2025).

The 'return' is the income the business earned over the last year. Another way to think of that is that for every QAR1 worth of equity, the company was able to earn QAR0.12 in profit.

Check out our latest analysis for Qatar Fuel Company Q.P.S.C. (WOQOD)

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. 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 all else is equal, companies that have both a higher return on equity and higher profit retention are usually the ones that have a higher growth rate when compared to companies that don't have the same features.

Qatar Fuel Company Q.P.S.C. (WOQOD)'s Earnings Growth And 12% ROE

It is hard to argue that Qatar Fuel Company Q.P.S.C. (WOQOD)'s ROE is much good in and of itself. However, the fact that it is higher than the industry average of 9.6% makes us a bit more interested. Having said that, Qatar Fuel Company Q.P.S.C. (WOQOD)'s net income growth of 5.0% over the past five years is a bit low. Bear in mind, the company does have a low ROE. It is just that the industry ROE is lower. So that's what might be causing earnings growth to stay low.

Next, on comparing with the industry net income growth, we found that Qatar Fuel Company Q.P.S.C. (WOQOD)'s reported growth was lower than the industry growth of 12% over the last few years, which is not something we like to see.

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. Doing so will help them establish if the stock's future looks promising or ominous. 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 Qatar Fuel Company Q.P.S.C. (WOQOD) is trading on a high P/E or a low P/E, relative to its industry.

Is Qatar Fuel Company Q.P.S.C. (WOQOD) Using Its Retained Earnings Effectively?

The high three-year median payout ratio of 89% (that is, the company retains only 11% of its income) over the past three years for Qatar Fuel Company Q.P.S.C. (WOQOD) suggests that the company's earnings growth was lower as a result of paying out a majority of its earnings.

Moreover, Qatar Fuel Company Q.P.S.C. (WOQOD) has been paying dividends for at least ten years or more suggesting that management must have perceived that the shareholders prefer dividends over earnings growth. Our latest analyst data shows that the future payout ratio of the company over the next three years is expected to be approximately 96%. Accordingly, forecasts suggest that Qatar Fuel Company Q.P.S.C. (WOQOD)'s future ROE will be 12% which is again, similar to the current ROE.

Summary

Overall, we have mixed feelings about Qatar Fuel Company Q.P.S.C. (WOQOD). On the one hand, the company does have a decent rate of return, however, its earnings growth number is quite disappointing and as discussed earlier, the low retained earnings is hampering the growth. Having said that, the company's earnings growth is expected to slow down, as forecasted in the current analyst estimates. 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.