Is Qatar Electricity & Water Company Q.P.S.C.'s (DSM:QEWS) Recent Performance Underpinned By Weak Financials?

Qatar Electricity & Water Company Q.P.S.C (DSM:QEWS) has had a rough three months with its share price down 6.9%. Given that stock prices are usually driven by a company’s fundamentals over the long term, which in this case look pretty weak, we decided to study the company's key financial indicators. Particularly, we will be paying attention to Qatar Electricity & Water Company Q.P.S.C's ROE today.

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.

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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 Qatar Electricity & Water Company Q.P.S.C is:

8.2% = ر.ق1.3b ÷ ر.ق16b (Based on the trailing twelve months to September 2025).

The 'return' is the profit over the last twelve months. That means that for every QAR1 worth of shareholders' equity, the company generated QAR0.08 in profit.

Check out our latest analysis for Qatar Electricity & Water Company Q.P.S.C

What Has ROE Got To Do With Earnings Growth?

So far, we've learned that ROE is a measure of a company's profitability. 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. Generally speaking, other things being equal, firms with a high return on equity and profit retention, have a higher growth rate than firms that don’t share these attributes.

Qatar Electricity & Water Company Q.P.S.C's Earnings Growth And 8.2% ROE

It is quite clear that Qatar Electricity & Water Company 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 7.6% either. Thus, the low ROE provides some context to Qatar Electricity & Water Company Q.P.S.C's flat net income growth over the past five years.

As a next step, we compared Qatar Electricity & Water Company Q.P.S.C's net income growth with the industry and were disappointed to see that the company's growth is lower than the industry average growth of 12% in the same period.

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. Doing so will help them establish if the stock's future looks promising or ominous. Has the market priced in the future outlook for QEWS? You can find out in our latest intrinsic value infographic research report.

Is Qatar Electricity & Water Company Q.P.S.C Using Its Retained Earnings Effectively?

The high three-year median payout ratio of 61% (meaning, the company retains only 39% of profits) for Qatar Electricity & Water Company Q.P.S.C suggests that the company's earnings growth was miniscule as a result of paying out a majority of its earnings.

Additionally, Qatar Electricity & Water Company Q.P.S.C has paid dividends over a period of at least ten years, which means that the company's management is determined to pay dividends even if it means little to no earnings growth. Our latest analyst data shows that the future payout ratio of the company over the next three years is expected to be approximately 61%. Still, forecasts suggest that Qatar Electricity & Water Company Q.P.S.C's future ROE will rise to 10% even though the the company's payout ratio is not expected to change by much.

Summary

In total, we would have a hard think before deciding on any investment action concerning Qatar Electricity & Water Company Q.P.S.C. Because the company is not reinvesting much into the business, and given the low ROE, it's not surprising to see the lack or absence of growth in its earnings. That being so, the latest analyst forecasts show that the company will continue to see an expansion in its earnings. 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.