Is Ooredoo Q.P.S.C.'s (DSM:ORDS) Recent Stock Performance Influenced By Its Financials In Any Way?

Most readers would already know that Ooredoo Q.P.S.C's (DSM:ORDS) stock increased by 3.1% over the past three months. As most would know, long-term fundamentals have a strong correlation with market price movements, 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. Specifically, we decided to study Ooredoo Q.P.S.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 short, ROE shows the profit each dollar generates with respect to its shareholder investments.

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

How Do You 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 Ooredoo Q.P.S.C is:

12% = ر.ق3.8b ÷ ر.ق33b (Based on the trailing twelve months to September 2024).

The 'return' refers to a company's earnings over the last year. One way to conceptualize this is that for each QAR1 of shareholders' capital it has, the company made QAR0.12 in profit.

What Is The Relationship Between ROE And Earnings Growth?

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

As you can see, Ooredoo Q.P.S.C's ROE looks pretty weak. A comparison with the industry shows that the company's ROE is pretty similar to the average industry ROE of 10%. Moreover, we are quite pleased to see that Ooredoo Q.P.S.C's net income grew significantly at a rate of 23% over the last five years. Given the low ROE, it is likely that there could be some other reasons behind this growth as well. Such as - high earnings retention or an efficient management in place.

As a next step, we compared Ooredoo Q.P.S.C's net income growth with the industry, and pleasingly, we found that the growth seen by the company is higher than the average industry growth of 14%.

Earnings growth is an important metric to consider when valuing a stock. 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. 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 Ooredoo Q.P.S.C is trading on a high P/E or a low P/E, relative to its industry.

Is Ooredoo Q.P.S.C Efficiently Re-investing Its Profits?

The high three-year median payout ratio of 54% (implying that it keeps only 46% of profits) for Ooredoo Q.P.S.C suggests that the company's growth wasn't really hampered despite it returning most of the earnings to its 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. Based on the latest analysts' estimates, we found that the company's future payout ratio over the next three years is expected to hold steady at 54%. Accordingly, forecasts suggest that Ooredoo Q.P.S.C's future ROE will be 12% which is again, similar to the current ROE.

Summary

On the whole, we do feel that Ooredoo Q.P.S.C has some positive attributes. 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. Having said that, the company's earnings growth is expected to slow down, as forecasted in the current analyst estimates. 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.