Canadian General Medical Center Complex Company's (TADAWUL:9518) Stock's Been Going Strong: Could Weak Financials Mean The Market Will Correct Its Share Price?

Most readers would already be aware that Canadian General Medical Center Complex's (TADAWUL:9518) stock increased significantly by 23% over the past three months. However, in this article, we decided to focus on its weak fundamentals, as long-term financial performance of a business is what ultimately dictates market outcomes. Particularly, we will be paying attention to Canadian General Medical Center Complex's ROE today.

Return on Equity or ROE is a test of how effectively a company is growing its value and managing investors’ money. Simply put, it is used to assess the profitability of a company in relation to its equity capital.

Check out our latest analysis for Canadian General Medical Center Complex

How To Calculate Return On Equity?

ROE 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 Canadian General Medical Center Complex is:

13% = ر.س11m ÷ ر.س88m (Based on the trailing twelve months to June 2024).

The 'return' is the profit over the last twelve months. So, this means that for every SAR1 of its shareholder's investments, the company generates a profit of SAR0.13.

What Is The Relationship Between ROE And Earnings Growth?

So far, we've learned that ROE is a measure of a company's profitability. 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.

Canadian General Medical Center Complex's Earnings Growth And 13% ROE

As you can see, Canadian General Medical Center Complex's ROE looks pretty weak. Even when compared to the industry average of 17%, the ROE figure is pretty disappointing. As a result, Canadian General Medical Center Complex's flat earnings over the past five years doesn't come as a surprise given its lower ROE.

We then compared Canadian General Medical Center Complex's net income growth with the industry and found that the average industry growth rate was 20% in the same 5-year period.

Earnings growth is an important metric to consider when valuing a stock. 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. 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 Canadian General Medical Center Complex is trading on a high P/E or a low P/E, relative to its industry.

Is Canadian General Medical Center Complex Using Its Retained Earnings Effectively?

With a high three-year median payout ratio of 93% (implying that the company keeps only 6.9% of its income) of its business to reinvest into its business), most of Canadian General Medical Center Complex's profits are being paid to shareholders, which explains the absence of growth in earnings.

In addition, Canadian General Medical Center Complex has been paying dividends over a period of three years suggesting that keeping up dividend payments is way more important to the management even if it comes at the cost of business growth.

Conclusion

In total, we would have a hard think before deciding on any investment action concerning Canadian General Medical Center Complex. Specifically, it has shown quite an unsatisfactory performance as far as earnings growth is concerned, and a poor ROE and an equally poor rate of reinvestment seem to be the reason behind this inadequate performance. Until now, we have only just grazed the surface of the company's past performance by looking at the company's fundamentals. So it may be worth checking this free detailed graph of Canadian General Medical Center Complex's past earnings, as well as revenue and cash flows to get a deeper insight into the company's performance.

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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.