Al Hassan Ghazi Ibrahim Shaker Company's (TADAWUL:1214) Stock On An Uptrend: Could Fundamentals Be Driving The Momentum?

Al Hassan Ghazi Ibrahim Shaker (TADAWUL:1214) has had a great run on the share market with its stock up by a significant 12% over the last week. Given that stock prices are usually aligned with a company's financial performance in the long-term, we decided to study its financial indicators more closely to see if they had a hand to play in the recent price move. Particularly, we will be paying attention to Al Hassan Ghazi Ibrahim Shaker'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 simpler terms, it measures the profitability of a company in relation to shareholder's equity.

View our latest analysis for Al Hassan Ghazi Ibrahim Shaker

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 Al Hassan Ghazi Ibrahim Shaker is:

9.0% = ر.س70m ÷ ر.س784m (Based on the trailing twelve months to September 2024).

The 'return' is the yearly profit. One way to conceptualize this is that for each SAR1 of shareholders' capital it has, the company made SAR0.09 in profit.

Why Is ROE Important For Earnings Growth?

So far, we've learned that ROE is a measure of a company's profitability. 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.

A Side By Side comparison of Al Hassan Ghazi Ibrahim Shaker's Earnings Growth And 9.0% ROE

It is quite clear that Al Hassan Ghazi Ibrahim Shaker's ROE is rather low. An industry comparison shows that the company's ROE is not much different from the industry average of 9.0% either. Moreover, we are quite pleased to see that Al Hassan Ghazi Ibrahim Shaker's net income grew significantly at a rate of 63% over the last five years. Given the low ROE, it is likely that there could be some other reasons behind this growth as well. For example, it is possible that the company's management has made some good strategic decisions, or that the company has a low payout ratio.

As a next step, we compared Al Hassan Ghazi Ibrahim Shaker'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 5.1%.

Earnings growth is a huge factor in stock valuation. 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. Is 1214 fairly valued? This infographic on the company's intrinsic value has everything you need to know.

Is Al Hassan Ghazi Ibrahim Shaker Making Efficient Use Of Its Profits?

Given that Al Hassan Ghazi Ibrahim Shaker doesn't pay any regular dividends to its shareholders, we infer that the company has been reinvesting all of its profits to grow its business.

Summary

Overall, we feel that Al Hassan Ghazi Ibrahim Shaker certainly does have some positive factors to consider. With a high rate of reinvestment, albeit at a low ROE, the company has managed to see a considerable growth in its earnings. With that said, the latest industry analyst forecasts reveal that the company's earnings growth is expected to slow down. Are these analysts expectations based on the broad expectations for the industry, or on the company's fundamentals? Click here to be taken to our analyst's forecasts page 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.