Does The Market Have A Low Tolerance For Dr. Soliman Abdel Kader Fakeeh Hospital Company's (TADAWUL:4017) Mixed Fundamentals?

Dr. Soliman Abdel Kader Fakeeh Hospital (TADAWUL:4017) has had a rough three months with its share price down 16%. It seems that the market might have completely ignored the positive aspects of the company's fundamentals and decided to weigh-in more on the negative aspects. Fundamentals usually dictate market outcomes so it makes sense to study the company's financials. Specifically, we decided to study Dr. Soliman Abdel Kader Fakeeh Hospital'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. 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 Dr. Soliman Abdel Kader Fakeeh Hospital is:

7.9% = ر.س270m ÷ ر.س3.4b (Based on the trailing twelve months to March 2025).

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 SAR0.08 in profit.

Check out our latest analysis for Dr. Soliman Abdel Kader Fakeeh Hospital

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. 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.

Dr. Soliman Abdel Kader Fakeeh Hospital's Earnings Growth And 7.9% ROE

As you can see, Dr. Soliman Abdel Kader Fakeeh Hospital's ROE looks pretty weak. Even compared to the average industry ROE of 18%, the company's ROE is quite dismal. Therefore, the disappointing ROE therefore provides a background to Dr. Soliman Abdel Kader Fakeeh Hospital's very little net income growth of 2.2% over the past five years.

As a next step, we compared Dr. Soliman Abdel Kader Fakeeh Hospital's net income growth with the industry and were disappointed to see that the company's growth is lower than the industry average growth of 14% in the same period.

Earnings growth is a huge factor in stock valuation. 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. If you're wondering about Dr. Soliman Abdel Kader Fakeeh Hospital's's valuation, check out this gauge of its price-to-earnings ratio, as compared to its industry.

Is Dr. Soliman Abdel Kader Fakeeh Hospital Making Efficient Use Of Its Profits?

Dr. Soliman Abdel Kader Fakeeh Hospital's low three-year median payout ratio of 23% (or a retention ratio of 77%) should mean that the company is retaining most of its earnings to fuel its growth. This should be reflected in its earnings growth number, but that's not the case. Therefore, there might be some other reasons to explain the lack in that respect. For example, the business could be in decline.

Based on the latest analysts' estimates, we found that the company's future payout ratio over the next three years is expected to hold steady at 23%. Still, forecasts suggest that Dr. Soliman Abdel Kader Fakeeh Hospital's future ROE will rise to 9.9% even though the the company's payout ratio is not expected to change by much.

Summary

Overall, we have mixed feelings about Dr. Soliman Abdel Kader Fakeeh Hospital. While the company does have a high rate of profit retention, its low rate of return is probably hampering its earnings growth. That being so, the latest analyst forecasts show that the company will continue to see an expansion in its earnings. Are these analysts expectations based on the broad expectations for the industry, or on the company's fundamentals? Click here to be taken to our analyst's forecasts page 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.