Dr. Sulaiman Al Habib Medical Services Group Company's (TADAWUL:4013) Stock's On An Uptrend: Are Strong Financials Guiding The Market?

Dr. Sulaiman Al Habib Medical Services Group (TADAWUL:4013) has had a great run on the share market with its stock up by a significant 6.3% over the last month. Since the market usually pay for a company’s long-term fundamentals, we decided to study the company’s key performance indicators to see if they could be influencing the market. Particularly, we will be paying attention to Dr. Sulaiman Al Habib Medical Services Group's ROE today.

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. In other words, it is a profitability ratio which measures the rate of return on the capital provided by the company's shareholders.

Check out our latest analysis for Dr. Sulaiman Al Habib Medical Services Group

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 Dr. Sulaiman Al Habib Medical Services Group is:

31% = ر.س2.3b ÷ ر.س7.4b (Based on the trailing twelve months to September 2024).

The 'return' refers to a company's earnings over the last year. Another way to think of that is that for every SAR1 worth of equity, the company was able to earn SAR0.31 in profit.

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 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.

A Side By Side comparison of Dr. Sulaiman Al Habib Medical Services Group's Earnings Growth And 31% ROE

To start with, Dr. Sulaiman Al Habib Medical Services Group's ROE looks acceptable. Especially when compared to the industry average of 16% the company's ROE looks pretty impressive. This certainly adds some context to Dr. Sulaiman Al Habib Medical Services Group's exceptional 20% net income growth seen over the past five years. We reckon that there could also be other factors at play here. Such as - high earnings retention or an efficient management in place.

We then performed a comparison between Dr. Sulaiman Al Habib Medical Services Group's net income growth with the industry, which revealed that the company's growth is similar to the average industry growth of 20% in the same 5-year period.

Earnings growth is a huge factor in stock valuation. 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. Has the market priced in the future outlook for 4013? You can find out in our latest intrinsic value infographic research report.

Is Dr. Sulaiman Al Habib Medical Services Group Making Efficient Use Of Its Profits?

Dr. Sulaiman Al Habib Medical Services Group has a significant three-year median payout ratio of 73%, meaning the company only retains 27% of its income. This implies that the company has been able to achieve high earnings growth despite returning most of its profits to shareholders.

Besides, Dr. Sulaiman Al Habib Medical Services Group 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 65% of its profits over the next three years. Still, forecasts suggest that Dr. Sulaiman Al Habib Medical Services Group's future ROE will rise to 40% even though the the company's payout ratio is not expected to change by much.

Summary

On the whole, we feel that Dr. Sulaiman Al Habib Medical Services Group's performance has been quite good. Especially the high ROE, Which has contributed to the impressive growth seen in earnings. Despite the company reinvesting only a small portion of its profits, it still has managed to grow its earnings so that is appreciable. 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.