Is Electrical Industries Company's (TADAWUL:1303) Latest Stock Performance A Reflection Of Its Financial Health?

Electrical Industries' (TADAWUL:1303) stock is up by a considerable 23% over the past three months. Given that the market rewards strong financials in the long-term, we wonder if that is the case in this instance. Specifically, we decided to study Electrical Industries' ROE in this article.

ROE or return on equity is a useful tool to assess how effectively a company can generate returns on the investment it received from its shareholders. In simpler terms, it measures the profitability of a company in relation to shareholder's equity.

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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 Electrical Industries is:

45% = ر.س486m ÷ ر.س1.1b (Based on the trailing twelve months to June 2025).

The 'return' refers to a company's earnings over the last year. That means that for every SAR1 worth of shareholders' equity, the company generated SAR0.45 in profit.

View our latest analysis for Electrical Industries

What Has ROE Got To Do With 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 Electrical Industries' Earnings Growth And 45% ROE

To begin with, Electrical Industries has a pretty high ROE which is interesting. Additionally, the company's ROE is higher compared to the industry average of 8.6% which is quite remarkable. As a result, Electrical Industries' exceptional 59% net income growth seen over the past five years, doesn't come as a surprise.

Next, on comparing with the industry net income growth, we found that Electrical Industries' growth is quite high when compared to the industry average growth of 12% in the same period, which is great to see.

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. If you're wondering about Electrical Industries''s valuation, check out this gauge of its price-to-earnings ratio, as compared to its industry.

Is Electrical Industries Using Its Retained Earnings Effectively?

The high three-year median payout ratio of 57% (implying that it keeps only 43% of profits) for Electrical Industries suggests that the company's growth wasn't really hampered despite it returning most of the earnings to its shareholders.

Besides, Electrical Industries has been paying dividends for at least ten years or more. This shows that the company is committed to sharing profits with its shareholders. 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 68%. Accordingly, forecasts suggest that Electrical Industries' future ROE will be 42% which is again, similar to the current ROE.

Summary

In total, we are pretty happy with Electrical Industries' performance. We are particularly impressed by the considerable earnings growth posted by the company, which was likely backed by its high ROE. While the company is paying out most of its earnings as dividends, it has been able to grow its earnings in spite of it, so that's probably a good sign. That being so, a study of the latest analyst forecasts show that the company is expected to see a slowdown in its future earnings growth. 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.