Ooredoo Q.P.S.C.'s (DSM:ORDS) Stock Is Going Strong: Have Financials A Role To Play?

Ooredoo Q.P.S.C (DSM:ORDS) has had a great run on the share market with its stock up by a significant 5.7% over the last month. We wonder if and what role the company's financials play in that price change as a company's long-term fundamentals usually dictate market outcomes. Specifically, we decided to study Ooredoo Q.P.S.C's ROE in this article.

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.

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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 Ooredoo Q.P.S.C is:

12% = ر.ق4.0b ÷ ر.ق32b (Based on the trailing twelve months to December 2024).

The 'return' is the yearly profit. So, this means that for every QAR1 of its shareholder's investments, the company generates a profit of QAR0.12.

View our latest analysis for Ooredoo 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. We now need to evaluate how much profit the company reinvests or "retains" for future growth which then gives us an idea about the growth potential of the company. 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 hard to argue that Ooredoo Q.P.S.C's ROE is much good in and of itself. However, the fact that it is higher than the industry average of 9.5% makes us a bit more interested. Particularly, the substantial 26% net income growth seen by Ooredoo Q.P.S.C over the past five years is impressive . Bear in mind, the company does have a low ROE. It is just that the industry ROE is lower. Hence, there might be some other aspects that are causing earnings to grow. For instance, the company has a low payout ratio or is being managed efficiently

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 11%.

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. This then helps them determine if the stock is placed for a bright or bleak future. Is Ooredoo Q.P.S.C fairly valued compared to other companies? These 3 valuation measures might help you decide.

Is Ooredoo Q.P.S.C Making Efficient Use Of Its Profits?

Ooredoo Q.P.S.C's significant three-year median payout ratio of 57% (where it is retaining only 43% of its income) suggests that the company has been able to achieve a high growth in earnings despite returning most of its income to shareholders.

Moreover, Ooredoo Q.P.S.C is determined to keep sharing its profits with shareholders which we infer from its long history of paying a dividend for at least ten years. Upon studying the latest analysts' consensus data, we found that the company is expected to keep paying out approximately 55% of its profits over the next three years. As a result, Ooredoo Q.P.S.C's ROE is not expected to change by much either, which we inferred from the analyst estimate of 12% for future ROE.

Conclusion

Overall, we feel that Ooredoo Q.P.S.C certainly does have some positive factors to consider. Especially the substantial growth in earnings backed by a decent ROE. Despite the company reinvesting only a small portion of its profits, it still has managed to grow its earnings so that is appreciable. With that said, the latest industry analyst forecasts reveal that the company's earnings growth is expected to slow down. To know more about the latest analysts predictions for the company, check out this visualization of analyst forecasts for the company.

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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.