Has MEEZA QSTP LLC (Public)'s (DSM:MEZA) Impressive Stock Performance Got Anything to Do With Its Fundamentals?

MEEZA QSTP (Public) (DSM:MEZA) has had a great run on the share market with its stock up by a significant 36% over the last three months. As most would know, fundamentals are what usually guide market price movements over the long-term, so we decided to look at the company's key financial indicators today to determine if they have any role to play in the recent price movement. In this article, we decided to focus on MEEZA QSTP (Public)'s ROE.

Return on Equity or ROE is a test of how effectively a company is growing its value and managing investors’ money. In short, ROE shows the profit each dollar generates with respect to its shareholder investments.

See our latest analysis for MEEZA QSTP (Public)

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 MEEZA QSTP (Public) is:

8.4% = ر.ق60m ÷ ر.ق719m (Based on the trailing twelve months to December 2023).

The 'return' is the profit over the last twelve months. So, this means that for every QAR1 of its shareholder's investments, the company generates a profit of QAR0.08.

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. 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. 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.

MEEZA QSTP (Public)'s Earnings Growth And 8.4% ROE

It is hard to argue that MEEZA QSTP (Public)'s ROE is much good in and of itself. Even compared to the average industry ROE of 12%, the company's ROE is quite dismal. However, the moderate 15% net income growth seen by MEEZA QSTP (Public) over the past five years is definitely a positive. We believe that there might be other aspects that are positively influencing the company's earnings growth. Such as - high earnings retention or an efficient management in place.

We then performed a comparison between MEEZA QSTP (Public)'s net income growth with the industry, which revealed that the company's growth is similar to the average industry growth of 14% in the same 5-year period.

The basis for attaching value to a company is, to a great extent, tied to its earnings growth. What investors need to determine next is if the expected earnings growth, or the lack of it, is already built into the share price. Doing so will help them establish if the stock's future looks promising or ominous. Is MEEZA QSTP (Public) fairly valued compared to other companies? These 3 valuation measures might help you decide.

Is MEEZA QSTP (Public) Making Efficient Use Of Its Profits?

MEEZA QSTP (Public) has a significant three-year median payout ratio of 87%, meaning that it is left with only 13% to reinvest into its business. This implies that the company has been able to achieve decent earnings growth despite returning most of its profits to shareholders.

Existing analyst estimates suggest that the company's future payout ratio is expected to drop to 67% over the next three years. The fact that the company's ROE is expected to rise to 15% over the same period is explained by the drop in the payout ratio.

Conclusion

Overall, we feel that MEEZA QSTP (Public) certainly does have some positive factors to consider. While no doubt its earnings growth is pretty substantial, we do feel that the reinvestment rate is pretty low, meaning, the earnings growth number could have been significantly higher had the company been retaining more of its profits. So far, we've only made a quick discussion around the company's earnings growth. To gain further insights into MEEZA QSTP (Public)'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.