Qatar Electricity & Water Company Q.P.S.C.'s (DSM:QEWS) Financials Are Too Obscure To Link With Current Share Price Momentum: What's In Store For the Stock?

Qatar Electricity & Water Company Q.P.S.C's (DSM:QEWS) stock is up by a considerable 7.4% over the past month. But the company's key financial indicators appear to be differing across the board and that makes us question whether or not the company's current share price momentum can be maintained. Specifically, we decided to study Qatar Electricity & Water Company 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. Put another way, it reveals the company's success at turning shareholder investments into profits.

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How Is ROE Calculated?

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

9.2% = ر.ق1.4b ÷ ر.ق15b (Based on the trailing twelve months to March 2025).

The 'return' is the income the business earned over the last year. One way to conceptualize this is that for each QAR1 of shareholders' capital it has, the company made QAR0.09 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?

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. 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 9.2% ROE

As you can see, Qatar Electricity & Water Company Q.P.S.C's ROE looks pretty weak. Still, the company's ROE is higher than the average industry ROE of 7.6% so that's certainly interesting. Having said that, Qatar Electricity & Water Company Q.P.S.C's net income growth of 3.0% over the past five years is a bit low. Remember, the company's ROE is quite low to begin with, just that it is higher than the industry average. Therefore, the low growth in earnings could also be the result of this.

Next, on comparing with the industry net income growth, we found that Qatar Electricity & Water Company Q.P.S.C's reported growth was lower than the industry growth of 15% over the last few years, which is not something we like to see.

Earnings growth is an important metric to consider when valuing a stock. 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. Is QEWS fairly valued? This infographic on the company's intrinsic value has everything you need to know.

Is Qatar Electricity & Water Company Q.P.S.C Efficiently Re-investing Its Profits?

Qatar Electricity & Water Company Q.P.S.C has a three-year median payout ratio of 61% (implying that it keeps only 39% of its profits), meaning that it pays out most of its profits to shareholders as dividends, and as a result, the company has seen low earnings growth.

In addition, Qatar Electricity & Water Company Q.P.S.C has been paying dividends over a period of at least ten years suggesting that keeping up dividend payments is way more important to the management even if it comes at the cost of business growth. 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 62%. Accordingly, forecasts suggest that Qatar Electricity & Water Company Q.P.S.C's future ROE will be 10% which is again, similar to the current ROE.

Summary

On the whole, we feel that the performance shown by Qatar Electricity & Water Company Q.P.S.C can be open to many interpretations. Specifically, the low earnings growth is a bit concerning, especially given that the company has a respectable rate of return. Investors may have benefitted, had the company been reinvesting more of its earnings. As discussed earlier, the company is retaining a small portion of its profits. Having said that, looking at the current analyst estimates, we found that the company's earnings are expected to gain momentum. 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.