Is YAMAMA Cement Company's (TADAWUL:3020) Recent Stock Performance Influenced By Its Fundamentals In Any Way?

Most readers would already be aware that YAMAMA Cement's (TADAWUL:3020) stock increased significantly by 14% 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. In this article, we decided to focus on YAMAMA Cement's ROE.

Return on Equity or ROE is a test of how effectively a company is growing its value and managing investors’ money. Simply put, it is used to assess the profitability of a company in relation to its equity capital.

View our latest analysis for YAMAMA Cement

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 YAMAMA Cement is:

7.3% = ر.س350m ÷ ر.س4.8b (Based on the trailing twelve months to September 2024).

The 'return' is the yearly profit. So, this means that for every SAR1 of its shareholder's investments, the company generates a profit of SAR0.07.

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 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 YAMAMA Cement's Earnings Growth And 7.3% ROE

As you can see, YAMAMA Cement's ROE looks pretty weak. Further, we noted that the company's ROE is similar to the industry average of 6.7%. Thus, the low ROE certainly provides some context to YAMAMA Cement's very little net income growth of 4.4% seen over the past five years.

Next, on comparing with the industry net income growth, we found that the growth figure reported by YAMAMA Cement compares quite favourably to the industry average, which shows a decline of 3.5% over the last few years.

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. If you're wondering about YAMAMA Cement's's valuation, check out this gauge of its price-to-earnings ratio, as compared to its industry.

Is YAMAMA Cement Making Efficient Use Of Its Profits?

With a high three-year median payout ratio of 57% (or a retention ratio of 43%), most of YAMAMA Cement's profits are being paid to shareholders. This definitely contributes to the low earnings growth seen by the company.

In addition, YAMAMA Cement has been paying dividends over a period of at least ten years suggesting that keeping up dividend payments is way more important to the management even if it comes at the cost of business growth. Upon studying the latest analysts' consensus data, we found that the company's future payout ratio is expected to rise to 70% over the next three years. Despite the higher expected payout ratio, the company's ROE is not expected to change by much.

Summary

On the whole, we do feel that YAMAMA Cement has some positive attributes. While no doubt its earnings growth is pretty substantial, we do feel that the reinvestment rate is pretty low, meaning, the earnings growth number could have been significantly higher had the company been retaining more of its profits. With that said, the latest industry analyst forecasts reveal that the company's earnings are expected to accelerate. 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.