Baladna Q.P.S.C.'s (DSM:BLDN) Stock On An Uptrend: Could Fundamentals Be Driving The Momentum?

July 21, 2022
  •  Updated
November 18, 2022
DSM:BLDN
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Baladna Q.P.S.C (DSM:BLDN) has had a great run on the share market with its stock up by a significant 8.7% over the last week. Given that stock prices are usually aligned with a company's financial performance in the long-term, we decided to study its financial indicators more closely to see if they had a hand to play in the recent price move. Specifically, we decided to study Baladna 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. Put another way, it reveals the company's success at turning shareholder investments into profits.

See our latest analysis for Baladna Q.P.S.C

How Is ROE Calculated?

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 Baladna Q.P.S.C is:

5.0% = ر.ق116m ÷ ر.ق2.3b (Based on the trailing twelve months to March 2022).

The 'return' refers to a company's earnings over the last year. So, this means that for every QAR1 of its shareholder's investments, the company generates a profit of QAR0.05.

What Is The Relationship Between ROE And 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.

A Side By Side comparison of Baladna Q.P.S.C's Earnings Growth And 5.0% ROE

It is hard to argue that Baladna Q.P.S.C's ROE is much good in and of itself. Even compared to the average industry ROE of 9.6%, the company's ROE is quite dismal. In spite of this, Baladna Q.P.S.C was able to grow its net income considerably, at a rate of 47% in the last five years. Therefore, there could be other reasons behind this growth. 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 compared Baladna Q.P.S.C's net income growth with the industry and we're pleased to see that the company's growth figure is higher when compared with the industry which has a growth rate of 8.4% in the same period.

past-earnings-growth
DSM:BLDN Past Earnings Growth July 21st 2022

Earnings growth is an important metric to consider when valuing a stock. The investor should try to establish if the expected growth or decline in earnings, whichever the case may be, is priced in. By doing so, they will have an idea if the stock is headed into clear blue waters or if swampy waters await. 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 Baladna Q.P.S.C is trading on a high P/E or a low P/E, relative to its industry.

Is Baladna Q.P.S.C Efficiently Re-investing Its Profits?

Baladna Q.P.S.C's significant three-year median payout ratio of 79% (where it is retaining only 21% of its income) suggests that the company has been able to achieve a high growth in earnings despite returning most of its income to shareholders.

Along with seeing a growth in earnings, Baladna Q.P.S.C only recently started paying dividends. Its quite possible that the company was looking to impress its shareholders.

Conclusion

Overall, we feel that Baladna Q.P.S.C certainly does have some positive factors to consider. Namely, its high earnings growth. We do however feel that the earnings growth number could have been even higher, had the company been reinvesting more of its earnings and paid out less dividends. So far, we've only made a quick discussion around the company's earnings growth. You can do your own research on Baladna Q.P.S.C and see how it has performed in the past by looking at this FREE detailed graph of past earnings, revenue and cash flows.

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