Could Mesaieed Petrochemical Holding Company Q.P.S.C.'s (DSM:MPHC) Weak Financials Mean That The Market Could Correct Its Share Price?

Mesaieed Petrochemical Holding Company Q.P.S.C's (DSM:MPHC) stock up by 4.3% over the past month. However, its weak financial performance indicators makes us a bit doubtful if that trend could continue. In this article, we decided to focus on Mesaieed Petrochemical Holding Company Q.P.S.C's ROE.

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 short, ROE shows the profit each dollar generates with respect to its shareholder investments.

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How To Calculate Return On Equity?

ROE 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 Mesaieed Petrochemical Holding Company Q.P.S.C is:

4.4% = ر.ق711m ÷ ر.ق16b (Based on the trailing twelve months to March 2025).

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 QAR0.04 in profit.

View our latest analysis for Mesaieed Petrochemical Holding Company Q.P.S.C

What Has ROE Got To Do With Earnings Growth?

So far, we've learned that ROE is a measure of a company's profitability. 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. 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 Mesaieed Petrochemical Holding Company Q.P.S.C's Earnings Growth And 4.4% ROE

As you can see, Mesaieed Petrochemical Holding Company Q.P.S.C's ROE looks pretty weak. Not just that, even compared to the industry average of 7.5%, the company's ROE is entirely unremarkable. For this reason, Mesaieed Petrochemical Holding Company Q.P.S.C's five year net income decline of 13% is not surprising given its lower ROE. We believe that there also might be other aspects that are negatively influencing the company's earnings prospects. For instance, the company has a very high payout ratio, or is faced with competitive pressures.

That being said, we compared Mesaieed Petrochemical Holding Company Q.P.S.C's performance with the industry and were concerned when we found that while the company has shrunk its earnings, the industry has grown its earnings at a rate of 6.0% in the same 5-year period.

The basis for attaching value to a company is, to a great extent, tied to its earnings growth. It’s important for an investor to know whether the market has priced in the company's expected earnings growth (or decline). This then helps them determine if the stock is placed for a bright or bleak future. Is Mesaieed Petrochemical Holding Company Q.P.S.C fairly valued compared to other companies? These 3 valuation measures might help you decide.

Is Mesaieed Petrochemical Holding Company Q.P.S.C Efficiently Re-investing Its Profits?

With a three-year median payout ratio as high as 105%,Mesaieed Petrochemical Holding Company Q.P.S.C's shrinking earnings don't come as a surprise as the company is paying a dividend which is beyond its means. Its usually very hard to sustain dividend payments that are higher than reported profits. To know the 2 risks we have identified for Mesaieed Petrochemical Holding Company Q.P.S.C visit our risks dashboard for free.

In addition, Mesaieed Petrochemical Holding Company Q.P.S.C has been paying dividends over a period of at least ten years suggesting that keeping up dividend payments is way more important to the management even if it comes at the cost of business growth.

Conclusion

In total, we would have a hard think before deciding on any investment action concerning Mesaieed Petrochemical Holding Company Q.P.S.C. Specifically, it has shown quite an unsatisfactory performance as far as earnings growth is concerned, and a poor ROE and an equally poor rate of reinvestment seem to be the reason behind this inadequate performance. Until now, we have only just grazed the surface of the company's past performance by looking at the company's fundamentals. To gain further insights into Mesaieed Petrochemical Holding Company 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.