Are Leaf Global Environmental Services Company's (TADAWUL:9597) Fundamentals Good Enough to Warrant Buying Given The Stock's Recent Weakness?

Leaf Global Environmental Services (TADAWUL:9597) has had a rough three months with its share price down 49%. However, stock prices are usually driven by a company’s financials over the long term, which in this case look pretty respectable. Specifically, we decided to study Leaf Global Environmental Services' 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. Put another way, it reveals the company's success at turning shareholder investments into profits.

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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 Leaf Global Environmental Services is:

29% = ر.س11m ÷ ر.س37m (Based on the trailing twelve months to June 2025).

The 'return' is the income the business earned over the last year. That means that for every SAR1 worth of shareholders' equity, the company generated SAR0.29 in profit.

See our latest analysis for Leaf Global Environmental Services

Why Is ROE Important For 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.

A Side By Side comparison of Leaf Global Environmental Services' Earnings Growth And 29% ROE

To begin with, Leaf Global Environmental Services seems to have a respectable ROE. Further, the company's ROE compares quite favorably to the industry average of 23%. This certainly adds some context to Leaf Global Environmental Services' decent 11% net income growth seen over the past five years.

Next, on comparing with the industry net income growth, we found that Leaf Global Environmental Services' reported growth was lower than the industry growth of 21% over the last few years, which is not something we like to see.

The basis for attaching value to a company is, to a great extent, tied to its earnings growth. 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. If you're wondering about Leaf Global Environmental Services''s valuation, check out this gauge of its price-to-earnings ratio, as compared to its industry.

Is Leaf Global Environmental Services Using Its Retained Earnings Effectively?

Leaf Global Environmental Services has a significant three-year median payout ratio of 50%, meaning that it is left with only 50% to reinvest into its business. This implies that the company has been able to achieve decent earnings growth despite returning most of its profits to shareholders.

Summary

Overall, we feel that Leaf Global Environmental Services certainly does have some positive factors to consider. Its earnings have grown respectably as we saw earlier, which was likely due to the company reinvesting its earnings at a pretty high rate of return. However, given the high ROE, we do think that the company is reinvesting a small portion of its profits. This could likely be preventing the company from growing to its full extent. Up till now, we've only made a short study of the company's growth data. So it may be worth checking this free detailed graph of Leaf Global Environmental Services' past earnings, as well as revenue and cash flows to get a deeper insight into the company's performance.

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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.