Dr. Soliman Abdel Kader Fakeeh Hospital Company's (TADAWUL:4017) Financials Are Too Obscure To Link With Current Share Price Momentum: What's In Store For the Stock?

Dr. Soliman Abdel Kader Fakeeh Hospital's (TADAWUL:4017) stock up by 5.2% over the past three months. Given that the stock prices usually follow long-term business performance, we wonder if the company's mixed financials could have any adverse effect on its current price price movement Particularly, we will be paying attention to Dr. Soliman Abdel Kader Fakeeh Hospital'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.

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

How To 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. Soliman Abdel Kader Fakeeh Hospital is:

7.7% = ر.س236m ÷ ر.س3.1b (Based on the trailing twelve months to June 2024).

The 'return' is the profit over the last twelve months. That means that for every SAR1 worth of shareholders' equity, the company generated SAR0.08 in profit.

Why Is ROE Important For 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.

Dr. Soliman Abdel Kader Fakeeh Hospital's Earnings Growth And 7.7% ROE

It is hard to argue that Dr. Soliman Abdel Kader Fakeeh Hospital's ROE is much good in and of itself. Even when compared to the industry average of 16%, the ROE figure is pretty disappointing. Therefore, Dr. Soliman Abdel Kader Fakeeh Hospital's flat earnings over the past five years can possibly be explained by the low ROE amongst other factors.

We then compared Dr. Soliman Abdel Kader Fakeeh Hospital's net income growth with the industry and found that the company's growth figure is lower than the average industry growth rate of 20% in the same 5-year period, which is a bit concerning.

The basis for attaching value to a company is, to a great extent, tied to its earnings growth. What investors need to determine next is if the expected earnings growth, or the lack of it, is already built into the share price. By doing so, they will have an idea if the stock is headed into clear blue waters or if swampy waters await. One good indicator of expected earnings growth is the P/E ratio which determines the price the market is willing to pay for a stock based on its earnings prospects. So, you may want to check if Dr. Soliman Abdel Kader Fakeeh Hospital is trading on a high P/E or a low P/E, relative to its industry.

Is Dr. Soliman Abdel Kader Fakeeh Hospital Using Its Retained Earnings Effectively?

Dr. Soliman Abdel Kader Fakeeh Hospital doesn't pay any regular dividends, meaning that potentially all of its profits are being reinvested in the business. However, this doesn't explain why the company hasn't seen any growth. So there might be other factors at play here which could potentially be hampering growth. For example, the business has faced some headwinds.

Summary

In total, we're a bit ambivalent about Dr. Soliman Abdel Kader Fakeeh Hospital's performance. While the company does have a high rate of reinvestment, the low ROE means that all that reinvestment is not reaping any benefit to its investors, and moreover, its having a negative impact on the earnings growth. With that said, the latest industry analyst forecasts reveal that the company's earnings are expected to accelerate. 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.