Stock Analysis

Vodafone Qatar P.Q.S.C. (DSM:VFQS) On An Uptrend: Could Fundamentals Be Driving The Stock?

Published

Most readers would already know that Vodafone Qatar P.Q.S.C's (DSM:VFQS) stock increased by 2.8% over the past week. 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 Vodafone Qatar P.Q.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. In other words, it is a profitability ratio which measures the rate of return on the capital provided by the company's shareholders.

View our latest analysis for Vodafone Qatar P.Q.S.C

How Do You 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 Vodafone Qatar P.Q.S.C is:

10% = ر.ق502m ÷ ر.ق4.8b (Based on the trailing twelve months to December 2022).

The 'return' is the amount earned after tax over the last twelve months. That means that for every QAR1 worth of shareholders' equity, the company generated QAR0.10 in profit.

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. 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.

Vodafone Qatar P.Q.S.C's Earnings Growth And 10% ROE

It is hard to argue that Vodafone Qatar P.Q.S.C's ROE is much good in and of itself. Further, we noted that the company's ROE is similar to the industry average of 11%. Looking at Vodafone Qatar P.Q.S.C's exceptional 51% five-year net income growth in particular, we are definitely impressed. Given the low ROE, it is likely that there could be some other reasons behind this growth as well. For instance, the company has a low payout ratio or is being managed efficiently.

As a next step, we compared Vodafone Qatar P.Q.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 10%.

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). By doing so, they will have an idea if the stock is headed into clear blue waters or if swampy waters await. Has the market priced in the future outlook for VFQS? You can find out in our latest intrinsic value infographic research report.

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

Vodafone Qatar P.Q.S.C's significant three-year median payout ratio of 84% (where it is retaining only 16% 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, Vodafone Qatar P.Q.S.C is determined to keep sharing its profits with shareholders which we infer from its long history of nine years of paying a dividend. 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 69%. Accordingly, forecasts suggest that Vodafone Qatar P.Q.S.C's future ROE will be 12% which is again, similar to the current ROE.

Conclusion

Overall, we feel that Vodafone Qatar P.Q.S.C certainly does have some positive factors to consider. That is, quite an impressive growth in earnings. However, the low profit retention means that the company's earnings growth could have been higher, had it been reinvesting a higher portion of its profits. 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 latest analysts predictions for the company, check out this visualization of analyst forecasts for the company.

Valuation is complex, but we're helping make it simple.

Find out whether Vodafone Qatar P.Q.S.C is potentially over or undervalued by checking out our comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, insider transactions and financial health.

View the Free Analysis