Is Saudi Arabian Mining Company (Ma'aden)'s (TADAWUL:1211) Recent Stock Performance Influenced By Its Fundamentals In Any Way?

Saudi Arabian Mining Company (Ma'aden) (TADAWUL:1211) has had a great run on the share market with its stock up by a significant 11% over the last week. Given that stock prices are usually aligned with a company's financial performance in the long-term, we decided to study its financial indicators more closely to see if they had a hand to play in the recent price move. Specifically, we decided to study Saudi Arabian Mining Company (Ma'aden)'s ROE in this article.

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 Do You 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 Saudi Arabian Mining Company (Ma'aden) is:

6.9% = ر.س4.1b ÷ ر.س60b (Based on the trailing twelve months to December 2024).

The 'return' refers to a company's earnings over the last year. One way to conceptualize this is that for each SAR1 of shareholders' capital it has, the company made SAR0.07 in profit.

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

What Is The Relationship Between ROE And Earnings Growth?

We have already established that ROE serves as an efficient profit-generating gauge for a company's future earnings. 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. Assuming everything else remains unchanged, the higher the ROE and profit retention, the higher the growth rate of a company compared to companies that don't necessarily bear these characteristics.

A Side By Side comparison of Saudi Arabian Mining Company (Ma'aden)'s Earnings Growth And 6.9% ROE

It is hard to argue that Saudi Arabian Mining Company (Ma'aden)'s ROE is much good in and of itself. Even when compared to the industry average of 11%, the ROE figure is pretty disappointing. In spite of this, Saudi Arabian Mining Company (Ma'aden) was able to grow its net income considerably, at a rate of 25% in the last five years. We believe that there might be other aspects that are positively influencing the company's earnings growth. Such as - high earnings retention or an efficient management in place.

We then compared Saudi Arabian Mining Company (Ma'aden)'s net income growth with the industry and we're pleased to see that the company's growth figure is higher when compared with the industry which has a growth rate of 1.1% in the same 5-year period.

Earnings growth is an important metric to consider when valuing a stock. 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?

Saudi Arabian Mining Company (Ma'aden) doesn't pay any regular dividends currently which essentially means that it has been reinvesting all of its profits into the business. This definitely contributes to the high earnings growth number that we discussed above.

Summary

On the whole, we do feel that Saudi Arabian Mining Company (Ma'aden) has some positive attributes. Despite its low rate of return, the fact that the company reinvests a very high portion of its profits into its business, no doubt contributed to its high earnings growth. On studying current analyst estimates, we found that analysts expect the company to continue its recent growth streak. 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.