National Company for Learning and Education's (TADAWUL:4291) Stock On An Uptrend: Could Fundamentals Be Driving The Momentum?

Most readers would already be aware that National Company for Learning and Education's (TADAWUL:4291) stock increased significantly by 68% over the past three months. As most would know, fundamentals are what usually guide market price movements over the long-term, so we decided to look at the company's key financial indicators today to determine if they have any role to play in the recent price movement. Specifically, we decided to study National Company for Learning and Education's 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. In short, ROE shows the profit each dollar generates with respect to its shareholder investments.

See our latest analysis for National Company for Learning and Education

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 National Company for Learning and Education is:

15% = ر.س107m ÷ ر.س736m (Based on the trailing twelve months to November 2023).

The 'return' is the yearly profit. One way to conceptualize this is that for each SAR1 of shareholders' capital it has, the company made SAR0.15 in profit.

What Is The Relationship Between ROE And 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. 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.

National Company for Learning and Education's Earnings Growth And 15% ROE

It is hard to argue that National Company for Learning and Education's ROE is much good in and of itself. However, when compared to the industry average of 11%, we do feel there's definitely more to the company. Particularly, the modest 17% net income growth seen by National Company for Learning and Education over the past five years is a positive. That being said, the company does have a low ROE to begin with, just that its higher than the industry average. Hence, there might be some other aspects that are causing earnings to grow. For instance, the company has a low payout ratio or is being managed efficiently

Next, on comparing with the industry net income growth, we found that National Company for Learning and Education's growth is quite high when compared to the industry average growth of 9.0% in the same period, which is great to see.

Earnings growth is an important metric to consider when valuing a stock. It’s important for an investor to know whether the market has priced in the company's expected earnings growth (or decline). This then helps them determine if the stock is placed for a bright or bleak future. If you're wondering about National Company for Learning and Education's's valuation, check out this gauge of its price-to-earnings ratio, as compared to its industry.

Is National Company for Learning and Education Using Its Retained Earnings Effectively?

The high three-year median payout ratio of 69% (or a retention ratio of 31%) for National Company for Learning and Education suggests that the company's growth wasn't really hampered despite it returning most of its income to its shareholders.

Besides, National Company for Learning and Education has been paying dividends over a period of five years. This shows that the company is committed to sharing profits with its shareholders. Upon studying the latest analysts' consensus data, we found that the company is expected to keep paying out approximately 60% of its profits over the next three years. Still, forecasts suggest that National Company for Learning and Education's future ROE will rise to 19% even though the the company's payout ratio is not expected to change by much.

Summary

Overall, we feel that National Company for Learning and Education certainly does have some positive factors to consider. Namely, its significant earnings growth, to which its moderate rate of return likely contributed. 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, a study of the latest analyst forecasts show that the company is expected to see a slowdown in its future earnings growth. To know more about the company's future earnings growth forecasts take a look at this free report on analyst forecasts for the company to find out more.

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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.