Is Jamjoom Pharmaceuticals Factory Company's (TADAWUL:4015) Latest Stock Performance Being Led By Its Strong Fundamentals?

Jamjoom Pharmaceuticals Factory's (TADAWUL:4015) stock is up by 7.7% over the past three months. Given that the market rewards strong financials in the long-term, we wonder if that is the case in this instance. In this article, we decided to focus on Jamjoom Pharmaceuticals Factory's ROE.

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.

Check out our latest analysis for Jamjoom Pharmaceuticals Factory

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 Jamjoom Pharmaceuticals Factory is:

24% = ر.س349m ÷ ر.س1.4b (Based on the trailing twelve months to September 2024).

The 'return' is the profit over the last twelve months. So, this means that for every SAR1 of its shareholder's investments, the company generates a profit of SAR0.24.

What Has ROE Got To Do With 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 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 Jamjoom Pharmaceuticals Factory's Earnings Growth And 24% ROE

To begin with, Jamjoom Pharmaceuticals Factory seems to have a respectable ROE. Further, the company's ROE compares quite favorably to the industry average of 9.8%. This certainly adds some context to Jamjoom Pharmaceuticals Factory's decent 17% net income growth seen over the past five years.

As a next step, we compared Jamjoom Pharmaceuticals Factory's net income growth with the industry, and pleasingly, we found that the growth seen by the company is higher than the average industry growth of 9.1%.

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. This then helps them determine if the stock is placed for a bright or bleak future. Is Jamjoom Pharmaceuticals Factory fairly valued compared to other companies? These 3 valuation measures might help you decide.

Is Jamjoom Pharmaceuticals Factory Using Its Retained Earnings Effectively?

While Jamjoom Pharmaceuticals Factory has a three-year median payout ratio of 58% (which means it retains 42% of profits), the company has still seen a fair bit of earnings growth in the past, meaning that its high payout ratio hasn't hampered its ability to grow.

While Jamjoom Pharmaceuticals Factory has been growing its earnings, it only recently started to pay dividends which likely means that the company decided to impress new and existing shareholders with a dividend. Based on the latest analysts' estimates, we found that the company's future payout ratio over the next three years is expected to hold steady at 61%. As a result, Jamjoom Pharmaceuticals Factory's ROE is not expected to change by much either, which we inferred from the analyst estimate of 24% for future ROE.

Summary

In total, we are pretty happy with Jamjoom Pharmaceuticals Factory's performance. Especially the high ROE, Which has contributed to the impressive growth seen in earnings. Despite the company reinvesting only a small portion of its profits, it still has managed to grow its earnings so that is appreciable. That being so, a study of the latest analyst forecasts show that the company is expected to see a slowdown in its future earnings growth. Are these analysts expectations based on the broad expectations for the industry, or on the company's fundamentals? Click here to be taken to our analyst's forecasts page for the company.

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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.