Al Taiseer Group TALCO Industrial Company's (TADAWUL:4143) Stock Has Shown Weakness Lately But Financial Prospects Look Decent: Is The Market Wrong?

Al Taiseer Group TALCO Industrial (TADAWUL:4143) has had a rough month with its share price down 16%. But if you pay close attention, you might find that its key financial indicators look quite decent, which could mean that the stock could potentially rise in the long-term given how markets usually reward more resilient long-term fundamentals. In this article, we decided to focus on Al Taiseer Group TALCO Industrial'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.

Check out our latest analysis for Al Taiseer Group TALCO Industrial

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 Al Taiseer Group TALCO Industrial is:

15% = ر.س82m ÷ ر.س544m (Based on the trailing twelve months to September 2024).

The 'return' is the amount earned after tax over the last twelve months. So, this means that for every SAR1 of its shareholder's investments, the company generates a profit of SAR0.15.

Why Is ROE Important For Earnings Growth?

We have already established that ROE serves as an efficient profit-generating gauge for a company's future earnings. Depending on how much of these profits the company reinvests or "retains", and how effectively it does so, we are then able to assess a company’s earnings growth potential. 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 Al Taiseer Group TALCO Industrial's Earnings Growth And 15% ROE

As you can see, Al Taiseer Group TALCO Industrial's ROE looks pretty weak. However, when compared to the industry average of 11%, we do feel there's definitely more to the company. Especially considering that Al Taiseer Group TALCO Industrial has seen a decent 19% net income growth seen over the past five years. Bear in mind, the company does have a low ROE. It is just that the industry ROE is lower. Therefore, the growth in earnings could also be the result of other factors. Such as high earnings retention or an efficient management in place.

We then compared Al Taiseer Group TALCO Industrial'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 15% in the same 5-year period.

The basis for attaching value to a company is, to a great extent, tied to its earnings growth. What investors need to determine next is if the expected earnings growth, or the lack of it, is already built into the share price. Doing so will help them establish if the stock's future looks promising or ominous. Is Al Taiseer Group TALCO Industrial fairly valued compared to other companies? These 3 valuation measures might help you decide.

Is Al Taiseer Group TALCO Industrial Making Efficient Use Of Its Profits?

Al Taiseer Group TALCO Industrial has a significant three-year median payout ratio of 73%, meaning that it is left with only 27% to reinvest into its business. This implies that the company has been able to achieve decent earnings growth despite returning most of its profits to shareholders.

Summary

Overall, we feel that Al Taiseer Group TALCO Industrial certainly does have some positive factors to consider. Especially the substantial growth in earnings backed by a decent ROE. Despite the company reinvesting only a small portion of its profits, it still has managed to grow its earnings so that is appreciable. Until now, we have only just grazed the surface of the company's past performance by looking at the company's fundamentals. To gain further insights into Al Taiseer Group TALCO Industrial'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.