Do Its Financials Have Any Role To Play In Driving AlMuneef Company for Trade, Industry, Agriculture and Contracting's (TADAWUL:9569) Stock Up Recently?

AlMuneef Company for Trade Industry Agriculture and Contracting (TADAWUL:9569) has had a great run on the share market with its stock up by a significant 10% 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. In this article, we decided to focus on AlMuneef Company for Trade Industry Agriculture and Contracting's ROE.

Return on Equity or ROE is a test of how effectively a company is growing its value and managing investors’ money. In short, ROE shows the profit each dollar generates with respect to its shareholder investments.

Check out our latest analysis for AlMuneef Company for Trade Industry Agriculture and Contracting

How To Calculate Return On Equity?

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 AlMuneef Company for Trade Industry Agriculture and Contracting is:

18% = ر.س17m ÷ ر.س97m (Based on the trailing twelve months to June 2024).

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 SAR0.18 in profit.

What Is The Relationship Between ROE And 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. 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.

AlMuneef Company for Trade Industry Agriculture and Contracting's Earnings Growth And 18% ROE

On the face of it, AlMuneef Company for Trade Industry Agriculture and Contracting's ROE is not much to talk about. However, the fact that the company's ROE is higher than the average industry ROE of 9.1%, is definitely interesting. However, AlMuneef Company for Trade Industry Agriculture and Contracting's five year net income decline rate was 6.5%. Remember, the company's ROE is a bit low to begin with, just that it is higher than the industry average. Hence, this goes some way in explaining the shrinking earnings.

However, when we compared AlMuneef Company for Trade Industry Agriculture and Contracting's growth with the industry we found that while the company's earnings have been shrinking, the industry has seen an earnings growth of 5.1% in the same period. This is quite worrisome.

The basis for attaching value to a company is, to a great extent, tied to its earnings growth. The investor should try to establish if the expected growth or decline in earnings, whichever the case may be, is priced in. By doing so, they will have an idea if the stock is headed into clear blue waters or if swampy waters await. If you're wondering about AlMuneef Company for Trade Industry Agriculture and Contracting's's valuation, check out this gauge of its price-to-earnings ratio, as compared to its industry.

Is AlMuneef Company for Trade Industry Agriculture and Contracting Making Efficient Use Of Its Profits?

In spite of a normal three-year median payout ratio of 44% (that is, a retention ratio of 56%), the fact that AlMuneef Company for Trade Industry Agriculture and Contracting's earnings have shrunk is quite puzzling. So there could be some other explanations in that regard. For instance, the company's business may be deteriorating.

Summary

In total, it does look like AlMuneef Company for Trade Industry Agriculture and Contracting has some positive aspects to its business. However, while the company does have a decent ROE and a high profit retention, its earnings growth number is quite disappointing. This suggests that there might be some external threat to the business, that's hampering growth. While we won't completely dismiss the company, what we would do, is try to ascertain how risky the business is to make a more informed decision around the company. Our risks dashboard would have the 3 risks we have identified for AlMuneef Company for Trade Industry Agriculture and Contracting.

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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.