Is Mesaieed Petrochemical Holding Company Q.P.S.C.'s (DSM:MPHC) Recent Performance Underpinned By Weak Financials?

With its stock down 3.8% over the past three months, it is easy to disregard Mesaieed Petrochemical Holding Company Q.P.S.C (DSM:MPHC). To decide if this trend could continue, we decided to look at its weak fundamentals as they shape the long-term market trends. Particularly, we will be paying attention to Mesaieed Petrochemical Holding Company 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. Put another way, it reveals the company's success at turning shareholder investments into profits.

How Do You Calculate Return On Equity?

The formula for ROE is:

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.ق719m ÷ ر.ق16b (Based on the trailing twelve months to December 2024).

The 'return' refers to a company's earnings over the last year. Another way to think of that is that for every QAR1 worth of equity, the company was able to earn QAR0.04 in profit.

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

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. 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.

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. Even when compared to the industry average of 7.6%, the ROE figure is pretty disappointing. Given the circumstances, the significant decline in net income by 12% seen by Mesaieed Petrochemical Holding Company Q.P.S.C over the last five years is not surprising. We reckon that there could also be other factors at play here. For example, the business has allocated capital poorly, or that the company has a very high payout ratio.

However, when we compared Mesaieed Petrochemical Holding Company Q.P.S.C's growth with the industry we found that while the company's earnings have been shrinking, the industry has seen an earnings growth of 7.4% in the same period. This is quite worrisome.

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. 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 Mesaieed Petrochemical Holding Company Q.P.S.C is trading on a high P/E or a low P/E, relative to its industry.

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

Mesaieed Petrochemical Holding Company Q.P.S.C has a high three-year median payout ratio of 100% (that is, it is retaining 0.2% of its profits). This suggests that the company is paying most of its profits as dividends to its shareholders. This goes some way in explaining why its earnings have been shrinking. With only a little being reinvested into the business, earnings growth would obviously be low or non-existent. 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.

Summary

On the whole, Mesaieed Petrochemical Holding Company Q.P.S.C's performance is quite a big let-down. Particularly, its ROE is a huge disappointment, not to mention its lack of proper reinvestment into the business. As a result its earnings growth has also been quite disappointing. Until now, we have only just grazed the surface of the company's past performance by looking at the company's fundamentals. So it may be worth checking this free detailed graph of Mesaieed Petrochemical Holding Company Q.P.S.C's past earnings, as well as revenue and cash flows to get a deeper insight into the company's performance.

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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.