Al Rajhi Company for Cooperative Insurance (TADAWUL:8230) Stock's Been Sliding But Fundamentals Look Decent: Will The Market Correct The Share Price In The Future?

Al Rajhi Company for Cooperative Insurance (TADAWUL:8230) has had a rough week with its share price down 1.9%. However, the company's fundamentals look pretty decent, and long-term financials are usually aligned with future market price movements. In this article, we decided to focus on Al Rajhi 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. In other words, it is a profitability ratio which measures the rate of return on the capital provided by the company's shareholders.

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How To 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 Al Rajhi Company for Cooperative Insurance is:

15% = ر.س334m ÷ ر.س2.3b (Based on the trailing twelve months to June 2025).

The 'return' is the yearly profit. One way to conceptualize this is that for each SAR1 of shareholders' capital it has, the company made SAR0.15 in profit.

Check out our latest analysis for Al Rajhi Company for Cooperative Insurance

What Has ROE Got To Do With 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. 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.

Al Rajhi Company for Cooperative Insurance's Earnings Growth And 15% ROE

As you can see, Al Rajhi Company for Cooperative Insurance's ROE looks pretty weak. However, the fact that it is higher than the industry average of 7.1% makes us a bit more interested. Especially when you consider Al Rajhi Company for Cooperative Insurance's exceptional 22% net income growth over the past five years. Bear in mind, the company does have a low ROE. It is just that the industry ROE is lower. Therefore, the growth in earnings could also be the result of other factors. For instance, the company has a low payout ratio or is being managed efficiently

We then compared Al Rajhi Company for Cooperative Insurance's net income growth with the industry and found that the company's growth figure is lower than the average industry growth rate of 30% in the same 5-year period, which is a bit concerning.

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. By doing so, they will have an idea if the stock is headed into clear blue waters or if swampy waters await. Is Al Rajhi Company for Cooperative Insurance fairly valued compared to other companies? These 3 valuation measures might help you decide.

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

Given that Al Rajhi Company for Cooperative Insurance doesn't pay any regular dividends to its shareholders, we infer that the company has been reinvesting all of its profits to grow its business.

Conclusion

On the whole, we do feel that Al Rajhi Company for Cooperative Insurance has some positive attributes. In particular, it's great to see that the company is investing heavily into its business and along with a moderate rate of return, that has resulted in a respectable growth in its earnings. While we won't completely dismiss the company, what we would do, is try to ascertain how risky the business is to make a more informed decision around the company. Our risks dashboard would have the 2 risks we have identified for Al Rajhi Company for Cooperative Insurance.

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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.