Arabian United Float Glass Company (TADAWUL:9611) Stock's Been Sliding But Fundamentals Look Decent: Will The Market Correct The Share Price In The Future?

Arabian United Float Glass (TADAWUL:9611) has had a rough three months with its share price down 12%. However, the company's fundamentals look pretty decent, and long-term financials are usually aligned with future market price movements. In this article, we decided to focus on Arabian United Float Glass' ROE.

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. 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 return on equity is:

Return on Equity = Net Profit (from continuing operations) ÷ Shareholders' Equity

So, based on the above formula, the ROE for Arabian United Float Glass is:

14% = ر.س66m ÷ ر.س455m (Based on the trailing twelve months to June 2025).

The 'return' is the profit over the last twelve months. So, this means that for every SAR1 of its shareholder's investments, the company generates a profit of SAR0.14.

See our latest analysis for Arabian United Float Glass

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. Assuming all else is equal, companies that have both a higher return on equity and higher profit retention are usually the ones that have a higher growth rate when compared to companies that don't have the same features.

Arabian United Float Glass' Earnings Growth And 14% ROE

It is quite clear that Arabian United Float Glass' ROE is rather low. However, when compared to the industry average of 11%, we do feel there's definitely more to the company. But seeing Arabian United Float Glass' five year net income decline of 15% over the past five years, we might rethink that. Bear in mind, the company does have a low ROE. It is just that the industry ROE is lower. Therefore, the decline in earnings could also be the result of this.

As a next step, we compared Arabian United Float Glass' performance with the industry and found thatArabian United Float Glass' performance is depressing even when compared with the industry, which has shrunk its earnings at a rate of 2.1% in the same period, which is a slower than the company.

Earnings growth is a huge factor in stock valuation. What investors need to determine next is if the expected earnings growth, or the lack of it, is already built into the share price. Doing so will help them establish if the stock's future looks promising or ominous. What is 9611 worth today? The intrinsic value infographic in our free research report helps visualize whether 9611 is currently mispriced by the market.

Is Arabian United Float Glass Making Efficient Use Of Its Profits?

Looking at its three-year median payout ratio of 29% (or a retention ratio of 71%) which is pretty normal, Arabian United Float Glass' declining earnings is rather baffling as one would expect to see a fair bit of growth when a company is retaining a good portion of its profits. It looks like there might be some other reasons to explain the lack in that respect. For example, the business could be in decline.

Conclusion

In total, it does look like Arabian United Float Glass 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 will have the 1 risk we have identified for Arabian United Float Glass.

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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.