Saudi Pharmaceutical Industries and Medical Appliances Corporation's (TADAWUL:2070) Financials Are Too Obscure To Link With Current Share Price Momentum: What's In Store For the Stock?

Saudi Pharmaceutical Industries and Medical Appliances (TADAWUL:2070) has had a great run on the share market with its stock up by a significant 10% over the last three months. However, we decided to pay attention to the company's fundamentals which don't appear to give a clear sign about the company's financial health. Specifically, we decided to study Saudi Pharmaceutical Industries and Medical Appliances' 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. In simpler terms, it measures the profitability of a company in relation to shareholder's equity.

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How Do You Calculate Return On Equity?

The formula for return on equity is:

Return on Equity = Net Profit (from continuing operations) ÷ Shareholders' Equity

So, based on the above formula, the ROE for Saudi Pharmaceutical Industries and Medical Appliances is:

8.1% = ر.س139m ÷ ر.س1.7b (Based on the trailing twelve months to September 2025).

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 SAR0.08.

Check out our latest analysis for Saudi Pharmaceutical Industries and Medical Appliances

Why Is ROE Important For Earnings Growth?

Thus far, we have learned that ROE measures how efficiently a company is generating its profits. 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. Generally speaking, other things being equal, firms with a high return on equity and profit retention, have a higher growth rate than firms that don’t share these attributes.

Saudi Pharmaceutical Industries and Medical Appliances' Earnings Growth And 8.1% ROE

It is quite clear that Saudi Pharmaceutical Industries and Medical Appliances' ROE is rather low. A comparison with the industry shows that the company's ROE is pretty similar to the average industry ROE of 8.8%. Saudi Pharmaceutical Industries and Medical Appliances' flat earnings over the past five years can possibly be explained by the low ROE amongst other factors.

As a next step, we compared Saudi Pharmaceutical Industries and Medical Appliances' net income growth with the industry and discovered that the industry saw an average growth of 7.5% in the same period.

Earnings growth is a huge factor in stock valuation. The investor should try to establish if the expected growth or decline in earnings, whichever the case may be, is priced in. This then helps them determine if the stock is placed for a bright or bleak future. Has the market priced in the future outlook for 2070? You can find out in our latest intrinsic value infographic research report.

Is Saudi Pharmaceutical Industries and Medical Appliances Efficiently Re-investing Its Profits?

Saudi Pharmaceutical Industries and Medical Appliances doesn't pay any regular dividends, meaning that the company is keeping all of its profits, which makes us wonder why it is retaining its earnings if it can't use them to grow its business. So there might be other factors at play here which could potentially be hampering growth. For example, the business has faced some headwinds.

Summary

In total, we're a bit ambivalent about Saudi Pharmaceutical Industries and Medical Appliances' performance. While the company does have a high rate of profit retention, its low rate of return is probably hampering its earnings growth. That being so, the latest industry analyst forecasts show that the analysts are expecting to see a huge improvement in the company's earnings growth rate. 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.