Are Dallah Healthcare Company's (TADAWUL:4004) Fundamentals Good Enough to Warrant Buying Given The Stock's Recent Weakness?

It is hard to get excited after looking at Dallah Healthcare's (TADAWUL:4004) recent performance, when its stock has declined 14% over the past month. However, stock prices are usually driven by a company’s financials over the long term, which in this case look pretty respectable. Particularly, we will be paying attention to Dallah Healthcare's ROE today.

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 Do You Calculate Return On Equity?

Return on equity 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 Dallah Healthcare is:

12% = ر.س532m ÷ ر.س4.5b (Based on the trailing twelve months to September 2025).

The 'return' is the yearly profit. That means that for every SAR1 worth of shareholders' equity, the company generated SAR0.12 in profit.

View our latest analysis for Dallah Healthcare

What Has ROE Got To Do With Earnings Growth?

We have already established that ROE serves as an efficient profit-generating gauge for a company's future earnings. 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. 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.

Dallah Healthcare's Earnings Growth And 12% ROE

It is quite clear that Dallah Healthcare's ROE is rather low. Even compared to the average industry ROE of 15%, the company's ROE is quite dismal. However, we we're pleasantly surprised to see that Dallah Healthcare grew its net income at a significant rate of 24% in the last five years. We reckon that there could be other factors at play here. For example, it is possible that the company's management has made some good strategic decisions, or that the company has a low payout ratio.

Next, on comparing with the industry net income growth, we found that Dallah Healthcare's growth is quite high when compared to the industry average growth of 17% in the same period, which is great to see.

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. What is 4004 worth today? The intrinsic value infographic in our free research report helps visualize whether 4004 is currently mispriced by the market.

Is Dallah Healthcare Using Its Retained Earnings Effectively?

The three-year median payout ratio for Dallah Healthcare is 44%, which is moderately low. The company is retaining the remaining 56%. This suggests that its dividend is well covered, and given the high growth we discussed above, it looks like Dallah Healthcare is reinvesting its earnings efficiently.

Additionally, Dallah Healthcare 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. Upon studying the latest analysts' consensus data, we found that the company is expected to keep paying out approximately 38% of its profits over the next three years. However, Dallah Healthcare's ROE is predicted to rise to 15% despite there being no anticipated change in its payout ratio.

Conclusion

In total, it does look like Dallah Healthcare has some positive aspects to its business. Even in spite of the low rate of return, the company has posted impressive earnings growth as a result of reinvesting heavily into its business. Having said that, the company's earnings growth is expected to slow down, as forecasted in the current analyst estimates. 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.