The National Shipping Company of Saudi Arabia (TADAWUL:4030) Is Going Strong But Fundamentals Appear To Be Mixed : Is There A Clear Direction For The Stock?

National Shipping Company of Saudi Arabia's (TADAWUL:4030) stock is up by a considerable 18% over the past three months. However, we decided to pay attention to the company's fundamentals which don't appear to give a clear sign about the company's financial health. Specifically, we decided to study National Shipping Company of Saudi Arabia'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. Put another way, it reveals the company's success at turning shareholder investments into profits.

View our latest analysis for National Shipping Company of Saudi Arabia

How Do You Calculate Return On Equity?

The formula for return on equity is:

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

So, based on the above formula, the ROE for National Shipping Company of Saudi Arabia is:

10% = ر.س1.2b ÷ ر.س11b (Based on the trailing twelve months to December 2022).

The 'return' is the amount earned after tax over the last twelve months. One way to conceptualize this is that for each SAR1 of shareholders' capital it has, the company made SAR0.10 in profit.

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. 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 all else is equal, companies that have both a higher return on equity and higher profit retention are usually the ones that have a higher growth rate when compared to companies that don't have the same features.

National Shipping Company of Saudi Arabia's Earnings Growth And 10% ROE

It is hard to argue that National Shipping Company of Saudi Arabia's ROE is much good in and of itself. Not just that, even compared to the industry average of 14%, the company's ROE is entirely unremarkable. Hence, the flat earnings seen by National Shipping Company of Saudi Arabia over the past five years could probably be the result of it having a lower ROE.

As a next step, we compared National Shipping Company of Saudi Arabia's net income growth with the industry and discovered that the industry saw an average growth of 13% in the same period.

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. Doing so will help them establish if the stock's future looks promising or ominous. Is National Shipping Company of Saudi Arabia fairly valued compared to other companies? These 3 valuation measures might help you decide.

Is National Shipping Company of Saudi Arabia Efficiently Re-investing Its Profits?

While the company did pay out a portion of its dividend in the past, it currently doesn't pay a dividend. We infer that the company has been reinvesting all of its profits to grow its business.

Summary

On the whole, we feel that the performance shown by National Shipping Company of Saudi Arabia can be open to many interpretations. While the company does have a high rate of profit retention, its low rate of return is probably hampering its earnings growth. Up till now, we've only made a short study of the company's growth data. To gain further insights into National Shipping Company of Saudi Arabia's past profit growth, check out this visualization of past earnings, revenue and cash flows.

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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.