Nahdi Medical Company (TADAWUL:4164) Stock Has Shown Weakness Lately But Financials Look Strong: Should Prospective Shareholders Make The Leap?

With its stock down 16% over the past month, it is easy to disregard Nahdi Medical (TADAWUL:4164). However, stock prices are usually driven by a company’s financial performance over the long term, which in this case looks quite promising. Specifically, we decided to study Nahdi Medical's ROE in this article.

Return on Equity or ROE is a test of how effectively a company is growing its value and managing investors’ money. In simpler terms, it measures the profitability of a company in relation to shareholder's equity.

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How Is ROE Calculated?

The formula for ROE is:

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

So, based on the above formula, the ROE for Nahdi Medical is:

32% = ر.س813m ÷ ر.س2.5b (Based on the trailing twelve months to September 2025).

The 'return' refers to a company's earnings over the last year. So, this means that for every SAR1 of its shareholder's investments, the company generates a profit of SAR0.32.

Check out our latest analysis for Nahdi Medical

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. 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.

Nahdi Medical's Earnings Growth And 32% ROE

At first glance, Nahdi Medical seems to have a decent ROE. Especially when compared to the industry average of 16% the company's ROE looks pretty impressive. Despite this, Nahdi Medical's five year net income growth was quite flat over the past five years. Therefore, there could be some other aspects that could potentially be preventing the company from growing. These include low earnings retention or poor allocation of capital.

Given that the industry shrunk its earnings at a rate of 2.3% over the last few years, the net income growth of the company is quite impressive.

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. This then helps them determine if the stock is placed for a bright or bleak future. Is 4164 fairly valued? This infographic on the company's intrinsic value has everything you need to know.

Is Nahdi Medical Using Its Retained Earnings Effectively?

The high three-year median payout ratio of 83% (meaning, the company retains only 17% of profits) for Nahdi Medical suggests that the company's earnings growth was miniscule as a result of paying out a majority of its earnings.

Additionally, Nahdi Medical has paid dividends over a period of three years, which means that the company's management is determined to pay dividends even if it means little to no earnings growth. Our latest analyst data shows that the future payout ratio of the company over the next three years is expected to be approximately 81%. Accordingly, forecasts suggest that Nahdi Medical's future ROE will be 35% which is again, similar to the current ROE.

Summary

On the whole, we feel that Nahdi Medical's performance has been quite good. 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, the latest analyst forecasts show that the company will continue to see an expansion in its earnings. 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.