Are Mohammed Hasan AlNaqool Sons Co.'s (TADAWUL:9514) Mixed Financials Driving The Negative Sentiment?

It is hard to get excited after looking at Mohammed Hasan AlNaqool Sons' (TADAWUL:9514) recent performance, when its stock has declined 19% over the past three months. It seems that the market might have completely ignored the positive aspects of the company's fundamentals and decided to weigh-in more on the negative aspects. Fundamentals usually dictate market outcomes so it makes sense to study the company's financials. Specifically, we decided to study Mohammed Hasan AlNaqool Sons' ROE in this article.

ROE or return on equity is a useful tool to assess how effectively a company can generate returns on the investment it received from its shareholders. Put another way, it reveals the company's success at turning shareholder investments into profits.

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How Is ROE Calculated?

ROE 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 Mohammed Hasan AlNaqool Sons is:

6.5% = ر.س3.6m ÷ ر.س55m (Based on the trailing twelve months to June 2025).

The 'return' refers to a company's earnings over the last year. Another way to think of that is that for every SAR1 worth of equity, the company was able to earn SAR0.06 in profit.

View our latest analysis for Mohammed Hasan AlNaqool Sons

What Is The Relationship Between ROE And Earnings Growth?

So far, we've learned that ROE is a measure of a company's profitability. 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.

Mohammed Hasan AlNaqool Sons' Earnings Growth And 6.5% ROE

It is quite clear that Mohammed Hasan AlNaqool Sons' ROE is rather low. An industry comparison shows that the company's ROE is not much different from the industry average of 7.4% either. Given the low ROE Mohammed Hasan AlNaqool Sons' five year net income decline of 36% is not surprising.

Furthermore, even when compared to the industry, which has been shrinking its earnings at a rate of 11% over the last few years, we found that Mohammed Hasan AlNaqool Sons' performance is pretty disappointing, as it suggests that the company has been shrunk its earnings at a rate faster than the industry.

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). 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 Mohammed Hasan AlNaqool Sons''s valuation, check out this gauge of its price-to-earnings ratio, as compared to its industry.

Is Mohammed Hasan AlNaqool Sons Efficiently Re-investing Its Profits?

Mohammed Hasan AlNaqool Sons doesn't pay any regular dividends, meaning that potentially all of its profits are being reinvested in the business, which doesn't explain why the company's earnings have shrunk if it is retaining all of its profits. So there could be some other explanations in that regard. For instance, the company's business may be deteriorating.

Conclusion

On the whole, we feel that the performance shown by Mohammed Hasan AlNaqool Sons can be open to many interpretations. While the company does have a high rate of profit retention, its low rate of return is probably hampering its earnings growth. Wrapping up, we would proceed with caution with this company and one way of doing that would be to look at the risk profile of the business. Our risks dashboard would have the 3 risks we have identified for Mohammed Hasan AlNaqool Sons.

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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.