Stock Analysis

Wataniya Insurance Company's (TADAWUL:8300) Stock Price Has Stayed Flat But Financial Prospects Look Decent: Can The Market Catch Up?

SASE:8300
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Wataniya Insurance's (TADAWUL:8300) stock was mostly flat over the past three months. However, the company's key financials probably have more to say so you may want to give the company a closer look given that stock prices usually follow the long-term financial performance of a business. Specifically, we decided to study Wataniya Insurance's ROE in this article.

Return on equity or ROE is a key measure used to assess how efficiently a company's management is utilizing the company's capital. In other words, it is a profitability ratio which measures the rate of return on the capital provided by the company's shareholders.

Check out our latest analysis for Wataniya Insurance

How Is ROE Calculated?

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 Wataniya Insurance is:

12% = ر.س30m ÷ ر.س253m (Based on the trailing twelve months to September 2020).

The 'return' is the yearly profit. Another way to think of that is that for every SAR1 worth of equity, the company was able to earn SAR0.12 in profit.

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.

A Side By Side comparison of Wataniya Insurance's Earnings Growth And 12% ROE

When you first look at it, Wataniya Insurance's ROE doesn't look that attractive. However, the fact that the company's ROE is higher than the average industry ROE of 7.8%, is definitely interesting. Having said that, Wataniya Insurance's net income growth over the past five years is more or less flat. Bear in mind, the company does have a slightly low ROE. It is just that the industry ROE is lower. So that could be one of the factors that are causing earnings growth to stay flat.

We then compared Wataniya Insurance's net income growth with the industry and found that the average industry growth rate was 2.8% in the same period.

past-earnings-growth
SASE:8300 Past Earnings Growth January 26th 2021

Earnings growth is an important metric to consider when valuing a stock. It’s important for an investor to know whether the market has priced in the company's expected earnings growth (or decline). This then helps them determine if the stock is placed for a bright or bleak future. 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 Wataniya Insurance is trading on a high P/E or a low P/E, relative to its industry.

Is Wataniya Insurance Using Its Retained Earnings Effectively?

Summary

Overall, we feel that Wataniya Insurance certainly does have some positive factors to consider. However, while the company does have a decent ROE and a high profit retention, its earnings growth number is quite disappointing. This suggests that there might be some external threat to the business, that's hampering growth. So far, we've only made a quick discussion around the company's earnings growth. So it may be worth checking this free detailed graph of Wataniya Insurance'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. 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.
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