Declining Stock and Solid Fundamentals: Is The Market Wrong About The Company for Cooperative Insurance (TADAWUL:8010)?

Company for Cooperative Insurance (TADAWUL:8010) has had a rough week with its share price down 6.6%. However, stock prices are usually driven by a company’s financial performance over the long term, which in this case looks quite promising. In this article, we decided to focus on Company for Cooperative Insurance's ROE.

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. Put another way, it reveals the company's success at turning shareholder investments into profits.

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How To Calculate Return On Equity?

The formula for ROE is:

Return on Equity = Net Profit (from continuing operations) ÷ Shareholders' Equity

So, based on the above formula, the ROE for Company for Cooperative Insurance is:

22% = ر.س1.1b ÷ ر.س5.0b (Based on the trailing twelve months to June 2025).

The 'return' is the income the business earned over the last year. That means that for every SAR1 worth of shareholders' equity, the company generated SAR0.22 in profit.

See our latest analysis for Company for Cooperative Insurance

What Is The Relationship Between ROE And Earnings Growth?

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

Company for Cooperative Insurance's Earnings Growth And 22% ROE

When you first look at it, Company for Cooperative Insurance's ROE doesn't look that attractive. However, the fact that the company's ROE is higher than the average industry ROE of 7.1%, is definitely interesting. Particularly, the substantial 29% net income growth seen by Company for Cooperative Insurance over the past five years is impressive . That being said, the company does have a slightly low ROE to begin with, just that it is higher than the industry average. Hence, there might be some other aspects that are causing earnings to grow. Such as- high earnings retention or the company belonging to a high growth industry.

As a next step, we compared Company for Cooperative Insurance's net income growth with the industry and found that the company has a similar growth figure when compared with the industry average growth rate of 30% in the same period.

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. If you're wondering about Company for Cooperative Insurance's's valuation, check out this gauge of its price-to-earnings ratio, as compared to its industry.

Is Company for Cooperative Insurance Making Efficient Use Of Its Profits?

Company for Cooperative Insurance has a really low three-year median payout ratio of 21%, meaning that it has the remaining 79% left over to reinvest into its business. So it seems like the management is reinvesting profits heavily to grow its business and this reflects in its earnings growth number.

Moreover, Company for Cooperative Insurance is determined to keep sharing its profits with shareholders which we infer from its long history of paying a dividend for at least ten years. Our latest analyst data shows that the future payout ratio of the company is expected to rise to 42% over the next three years. Despite the higher expected payout ratio, the company's ROE is not expected to change by much.

Summary

In total, we are pretty happy with Company for Cooperative Insurance's performance. Specifically, we like that it has been reinvesting a high portion of its profits at a moderate rate of return, resulting in earnings expansion. With that said, the latest industry analyst forecasts reveal that the company's earnings growth is expected to slow down. 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.