Stock Analysis

Do Its Financials Have Any Role To Play In Driving Ooredoo Q.P.S.C.'s (DSM:ORDS) Stock Up Recently?

DSM:ORDS
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Most readers would already be aware that Ooredoo Q.P.S.C's (DSM:ORDS) stock increased significantly by 13% 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 Ooredoo 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. Simply put, it is used to assess the profitability of a company in relation to its equity capital.

See our latest analysis for Ooredoo Q.P.S.C

How To Calculate Return On Equity?

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 Ooredoo Q.P.S.C is:

12% = ر.ق3.6b ÷ ر.ق31b (Based on the trailing twelve months to June 2024).

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 QAR0.12 in profit.

What Has ROE Got To Do With Earnings Growth?

We have already established that ROE serves as an efficient profit-generating gauge for a company's future earnings. 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.

Ooredoo Q.P.S.C's Earnings Growth And 12% ROE

It is quite clear that Ooredoo Q.P.S.C's ROE is rather low. An industry comparison shows that the company's ROE is not much different from the industry average of 12% either. So we are actually pleased to see that Ooredoo Q.P.S.C's net income grew at an acceptable rate of 20% over the last five years. We reckon that there could also be other factors at play that are influencing the company's growth. Such as - high earnings retention or an efficient management in place.

We then compared Ooredoo Q.P.S.C's net income growth with the industry and we're pleased to see that the company's growth figure is higher when compared with the industry which has a growth rate of 13% in the same 5-year period.

past-earnings-growth
DSM:ORDS Past Earnings Growth September 26th 2024

Earnings growth is a huge factor in stock valuation. The investor should try to establish if the expected growth or decline in earnings, whichever the case may be, is priced in. This then helps them determine if the stock is placed for a bright or bleak future. If you're wondering about Ooredoo Q.P.S.C's's valuation, check out this gauge of its price-to-earnings ratio, as compared to its industry.

Is Ooredoo Q.P.S.C Using Its Retained Earnings Effectively?

Ooredoo Q.P.S.C has a significant three-year median payout ratio of 52%, meaning that it is left with only 48% 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.

Additionally, Ooredoo Q.P.S.C has paid dividends over a period of at least ten years which means that the company is pretty serious about sharing its profits with shareholders. Upon studying the latest analysts' consensus data, we found that the company is expected to keep paying out approximately 57% of its profits over the next three years. Therefore, the company's future ROE is also not expected to change by much with analysts predicting an ROE of 12%.

Summary

Overall, we feel that Ooredoo Q.P.S.C certainly does have some positive factors to consider. 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. That being so, a study of the latest analyst forecasts show that the company is expected to see a slowdown in its future earnings growth. To know more about the company's future earnings growth forecasts take a look at this free report on analyst forecasts for the company to find out more.

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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.