Declining Stock and Decent Financials: Is The Market Wrong About Jahez International Company for Information Systems Technology (TADAWUL:9526)?

It is hard to get excited after looking at Jahez International Company for Information Systems Technology's (TADAWUL:9526) recent performance, when its stock has declined 12% over the past month. But if you pay close attention, you might find that its key financial indicators look quite decent, which could mean that the stock could potentially rise in the long-term given how markets usually reward more resilient long-term fundamentals. Specifically, we decided to study Jahez International Company for Information Systems Technology's ROE in this article.

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

See our latest analysis for Jahez International Company for Information Systems Technology

How Is ROE Calculated?

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 Jahez International Company for Information Systems Technology is:

10% = ر.س119m ÷ ر.س1.1b (Based on the trailing twelve months to December 2023).

The 'return' is the yearly profit. Another way to think of that is that for every SAR1 worth of equity, the company was able to earn SAR0.10 in profit.

What Has ROE Got To Do With Earnings Growth?

So far, we've learned that ROE is a measure of a company's profitability. Based on how much of its profits the company chooses to reinvest or "retain", we are then able to evaluate a company's future ability to generate profits. 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.

Jahez International Company for Information Systems Technology's Earnings Growth And 10% ROE

As you can see, Jahez International Company for Information Systems Technology's ROE looks pretty weak. Further, we noted that the company's ROE is similar to the industry average of 9.6%. However, the exceptional 24% net income growth seen by Jahez International Company for Information Systems Technology over the past five years is pretty remarkable. Given the low ROE, it is likely that there could be some other reasons behind this growth as well. Such as - high earnings retention or an efficient management in place.

Given that the industry shrunk its earnings at a rate of 3.3% over the last few years, the net income growth of the company is quite impressive.

The basis for attaching value to a company is, to a great extent, tied to its earnings growth. The investor should try to establish if the expected growth or decline in earnings, whichever the case may be, is priced in. By doing so, they will have an idea if the stock is headed into clear blue waters or if swampy waters await. If you're wondering about Jahez International Company for Information Systems Technology's's valuation, check out this gauge of its price-to-earnings ratio, as compared to its industry.

Is Jahez International Company for Information Systems Technology Efficiently Re-investing Its Profits?

Jahez International Company for Information Systems Technology doesn't pay any regular dividends currently which essentially means that it has been reinvesting all of its profits into the business. This definitely contributes to the high earnings growth number that we discussed above.

Conclusion

In total, it does look like Jahez International Company for Information Systems Technology has some positive aspects to its business. Despite its low rate of return, the fact that the company reinvests a very high portion of its profits into its business, no doubt contributed to its high earnings growth. The latest industry analyst forecasts show that the company is expected to maintain its current growth rate. 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.