Is East Pipes Integrated Company for Industry's (TADAWUL:1321) Recent Stock Performance Influenced By Its Fundamentals In Any Way?

East Pipes Integrated Company for Industry's (TADAWUL:1321) stock is up by a considerable 36% over the past three months. As most would know, fundamentals are what usually guide market price movements over the long-term, so we decided to look at the company's key financial indicators today to determine if they have any role to play in the recent price movement. Specifically, we decided to study East Pipes Integrated Company for Industry'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. Put another way, it reveals the company's success at turning shareholder investments into profits.

See our latest analysis for East Pipes Integrated Company for Industry

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 East Pipes Integrated Company for Industry is:

15% = ر.س87m ÷ ر.س587m (Based on the trailing twelve months to September 2023).

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 SAR0.15 in profit.

What Has ROE Got To Do With Earnings Growth?

We have already established that ROE serves as an efficient profit-generating gauge for a company's future earnings. 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.

East Pipes Integrated Company for Industry's Earnings Growth And 15% ROE

As you can see, East Pipes Integrated Company for Industry's ROE looks pretty weak. However, the fact that it is higher than the industry average of 6.0% makes us a bit more interested. Still, East Pipes Integrated Company for Industry has seen a flat 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. So that's what might be causing earnings growth to stay low.

As a next step, we compared East Pipes Integrated Company for Industry's net income growth with the industry and were disappointed to see that the company's growth is lower than the industry average growth of 22% in the same period.

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. 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 East Pipes Integrated Company for Industry's's valuation, check out this gauge of its price-to-earnings ratio, as compared to its industry.

Is East Pipes Integrated Company for Industry Efficiently Re-investing Its Profits?

In spite of a normal three-year median payout ratio of 36% (or a retention ratio of 64%), East Pipes Integrated Company for Industry hasn't seen much growth in its earnings. Therefore, there might be some other reasons to explain the lack in that respect. For example, the business could be in decline.

Additionally, East Pipes Integrated Company for Industry started paying a dividend only recently. So it looks like the management must have perceived that shareholders favor dividends over earnings growth.

Conclusion

On the whole, we do feel that East Pipes Integrated Company for Industry has some positive attributes. Although, we are disappointed to see a lack of growth in earnings even in spite of a moderate ROE and and a high reinvestment rate. We believe that there might be some outside factors that could be having a negative impact on the business. Up till now, we've only made a short study of the company's growth data. To gain further insights into East Pipes Integrated Company for Industry's past profit growth, check out this visualization of past earnings, revenue and cash flows.

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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.