Does The Market Have A Low Tolerance For Qatar Insurance Company Q.S.P.C.'s (DSM:QATI) Mixed Fundamentals?

With its stock down 5.5% over the past month, it is easy to disregard Qatar Insurance Company Q.S.P.C (DSM:QATI). 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. Long-term fundamentals are usually what drive market outcomes, so it's worth paying close attention. Specifically, we decided to study Qatar Insurance Company Q.S.P.C's ROE in this article.

Return on equity or ROE is a key measure used to assess how efficiently a company's management is utilizing the company's capital. In other words, it is a profitability ratio which measures the rate of return on the capital provided by the company's shareholders.

See our latest analysis for Qatar Insurance Company Q.S.P.C

How Is ROE Calculated?

The formula for ROE is:

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

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

7.0% = ر.ق578m ÷ ر.ق8.2b (Based on the trailing twelve months to September 2023).

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 QAR0.07 in profit.

What Is The Relationship Between ROE And Earnings Growth?

Thus far, we have learned that ROE measures how efficiently a company is generating its profits. We now need to evaluate how much profit the company reinvests or "retains" for future growth which then gives us an idea about the growth potential of the company. Generally speaking, other things being equal, firms with a high return on equity and profit retention, have a higher growth rate than firms that don’t share these attributes.

A Side By Side comparison of Qatar Insurance Company Q.S.P.C's Earnings Growth And 7.0% ROE

It is quite clear that Qatar Insurance Company Q.S.P.C's ROE is rather low. Even compared to the average industry ROE of 15%, the company's ROE is quite dismal. Hence, the flat earnings seen by Qatar Insurance Company Q.S.P.C over the past five years could probably be the result of it having a lower ROE.

We then compared Qatar Insurance Company Q.S.P.C's net income growth with the industry and found that the average industry growth rate was 11% in the same 5-year 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 Qatar Insurance Company Q.S.P.C fairly valued compared to other companies? These 3 valuation measures might help you decide.

Is Qatar Insurance Company Q.S.P.C Making Efficient Use Of Its Profits?

While the company did pay out a portion of its dividend in the past, it currently doesn't pay a dividend. We infer that the company has been reinvesting all of its profits to grow its business.

Conclusion

In total, we're a bit ambivalent about Qatar Insurance Company Q.S.P.C's performance. While the company does have a high rate of profit retention, its low rate of return is probably hampering its earnings growth. 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 latest analysts predictions for the company, check out this visualization of analyst forecasts for the company.

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.