Abdullah Al-Othaim Markets Company (TADAWUL:4001) Stock's Been Sliding But Fundamentals Look Decent: Will The Market Correct The Share Price In The Future?

With its stock down 18% over the past three months, it is easy to disregard Abdullah Al-Othaim Markets (TADAWUL:4001). However, stock prices are usually driven by a company’s financials over the long term, which in this case look pretty respectable. In this article, we decided to focus on Abdullah Al-Othaim Markets' ROE.

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. Simply put, it is used to assess the profitability of a company in relation to its equity capital.

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How To 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 Abdullah Al-Othaim Markets is:

34% = ر.س480m ÷ ر.س1.4b (Based on the trailing twelve months to March 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 SAR0.34.

Check out our latest analysis for Abdullah Al-Othaim Markets

What Has ROE Got To Do With Earnings Growth?

Thus far, we have learned that ROE measures how efficiently a company is generating its profits. 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. Generally speaking, other things being equal, firms with a high return on equity and profit retention, have a higher growth rate than firms that don’t share these attributes.

Abdullah Al-Othaim Markets' Earnings Growth And 34% ROE

To begin with, Abdullah Al-Othaim Markets seems to have a respectable ROE. Especially when compared to the industry average of 20% the company's ROE looks pretty impressive. Probably as a result of this, Abdullah Al-Othaim Markets was able to see a decent growth of 7.3% over the last five years.

As a next step, we compared Abdullah Al-Othaim Markets' 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 1.9%.

Earnings growth is an important metric to consider when valuing a stock. 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 4001 worth today? The intrinsic value infographic in our free research report helps visualize whether 4001 is currently mispriced by the market.

Is Abdullah Al-Othaim Markets Using Its Retained Earnings Effectively?

While Abdullah Al-Othaim Markets has a three-year median payout ratio of 98% (which means it retains 1.6% of profits), the company has still seen a fair bit of earnings growth in the past, meaning that its high payout ratio hasn't hampered its ability to grow.

Additionally, Abdullah Al-Othaim Markets has paid dividends over a period of at least ten years which means that the company is pretty serious about sharing its profits with 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 88%. Therefore, the company's future ROE is also not expected to change by much with analysts predicting an ROE of 36%.

Summary

In total, it does look like Abdullah Al-Othaim Markets has some positive aspects to its business. Namely, its high earnings growth, which was likely due to its high ROE. However, investors could have benefitted even more from the high ROE, had the company been reinvesting more of its earnings. As discussed earlier, the company is retaining hardly any of its profits. With that said, on studying the latest analyst forecasts, we found that while the company has seen growth in its past earnings, analysts expect its future earnings to shrink. 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.