Declining Stock and Decent Financials: Is The Market Wrong About Saudi Arabian Mining Company (Ma'aden) (TADAWUL:1211)?

It is hard to get excited after looking at Saudi Arabian Mining Company (Ma'aden)'s (TADAWUL:1211) recent performance, when its stock has declined 11% over the past three months. However, stock prices are usually driven by a company’s financials over the long term, which in this case look pretty respectable. In this article, we decided to focus on Saudi Arabian Mining Company (Ma'aden)'s ROE.

Return on equity or ROE is a key measure used to assess how efficiently a company's management is utilizing the company's capital. Simply put, it is used to assess the profitability of a company in relation to its equity capital.

Check out our latest analysis for Saudi Arabian Mining Company (Ma'aden)

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 Saudi Arabian Mining Company (Ma'aden) is:

5.8% = ر.س3.4b ÷ ر.س59b (Based on the trailing twelve months to June 2024).

The 'return' is the amount earned after tax over the last twelve months. Another way to think of that is that for every SAR1 worth of equity, the company was able to earn SAR0.06 in profit.

What Is The Relationship Between ROE And Earnings Growth?

Thus far, we have learned that ROE measures how efficiently a company is generating its profits. 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.

A Side By Side comparison of Saudi Arabian Mining Company (Ma'aden)'s Earnings Growth And 5.8% ROE

It is quite clear that Saudi Arabian Mining Company (Ma'aden)'s ROE is rather low. A comparison with the industry shows that the company's ROE is pretty similar to the average industry ROE of 6.7%. Looking at Saudi Arabian Mining Company (Ma'aden)'s exceptional 36% five-year net income growth in particular, we are definitely impressed. We reckon that there could also be other factors at play thats influencing the company's growth. For instance, the company has a low payout ratio or is being managed efficiently.

As a next step, we compared Saudi Arabian Mining Company (Ma'aden)'s net income growth with the industry, and pleasingly, we found that the growth seen by the company is higher than the average industry growth of 14%.

Earnings growth is a huge factor in stock valuation. What investors need to determine next is if the expected earnings growth, or the lack of it, is already built into the share price. This then helps them determine if the stock is placed for a bright or bleak future. If you're wondering about Saudi Arabian Mining Company (Ma'aden)'s's valuation, check out this gauge of its price-to-earnings ratio, as compared to its industry.

Is Saudi Arabian Mining Company (Ma'aden) Efficiently Re-investing Its Profits?

Given that Saudi Arabian Mining Company (Ma'aden) 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.

Summary

In total, it does look like Saudi Arabian Mining Company (Ma'aden) has some positive aspects to its business. With a high rate of reinvestment, albeit at a low ROE, the company has managed to see a considerable growth in its earnings. 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.