Is Baladna Q.P.S.C.'s (DSM:BLDN) Recent Stock Performance Influenced By Its Fundamentals In Any Way?

Most readers would already be aware that Baladna Q.P.S.C's (DSM:BLDN) stock increased significantly by 16% over the past three months. 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. Particularly, we will be paying attention to Baladna Q.P.S.C's ROE today.

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.

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

How To 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 Baladna Q.P.S.C is:

4.6% = ر.ق109m ÷ ر.ق2.4b (Based on the trailing twelve months to December 2023).

The 'return' is the yearly profit. So, this means that for every QAR1 of its shareholder's investments, the company generates a profit of QAR0.05.

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. 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 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.

Baladna Q.P.S.C's Earnings Growth And 4.6% ROE

It is quite clear that Baladna Q.P.S.C's ROE is rather low. Not just that, even compared to the industry average of 9.3%, the company's ROE is entirely unremarkable. However, the moderate 11% net income growth seen by Baladna Q.P.S.C over the past five years is definitely a positive. Therefore, the growth in earnings could probably have been caused by other variables. For instance, the company has a low payout ratio or is being managed efficiently.

As a next step, we compared Baladna Q.P.S.C's net income growth with the industry and found that the company has a similar growth figure when compared with the industry average growth rate of 13% in the same period.

Earnings growth is an important metric to consider when valuing a stock. It’s important for an investor to know whether the market has priced in the company's expected earnings growth (or decline). Doing so will help them establish if the stock's future looks promising or ominous. Is Baladna Q.P.S.C fairly valued compared to other companies? These 3 valuation measures might help you decide.

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

While Baladna Q.P.S.C has a three-year median payout ratio of 89% (which means it retains 11% of profits), the company has still seen a fair bit of earnings growth in the past, meaning that its high payout ratio hasn't hampered its ability to grow.

Additionally, Baladna Q.P.S.C has paid dividends over a period of four years which means that the company is pretty serious about sharing its profits with shareholders.

Conclusion

In total, it does look like Baladna Q.P.S.C has some positive aspects to its business. 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. Up till now, we've only made a short study of the company's growth data. To gain further insights into Baladna Q.P.S.C's past profit growth, check out this visualization of past earnings, revenue and cash flows.

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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.