Jamjoom Pharmaceuticals Factory Company (TADAWUL:4015) Stock Has Shown Weakness Lately But Financials Look Strong: Should Prospective Shareholders Make The Leap?

Jamjoom Pharmaceuticals Factory (TADAWUL:4015) has had a rough month with its share price down 11%. However, a closer look at its sound financials might cause you to think again. Given that fundamentals usually drive long-term market outcomes, the company is worth looking at. Particularly, we will be paying attention to Jamjoom Pharmaceuticals Factory's ROE today.

Return on equity or ROE is a key measure used to assess how efficiently a company's management is utilizing the company's capital. Put another way, it reveals the company's success at turning shareholder investments into profits.

View our latest analysis for Jamjoom Pharmaceuticals Factory

How To Calculate Return On Equity?

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 Jamjoom Pharmaceuticals Factory is:

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

The 'return' is the amount earned after tax over the last twelve months. One way to conceptualize this is that for each SAR1 of shareholders' capital it has, the company made SAR0.24 in profit.

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.

Jamjoom Pharmaceuticals Factory's Earnings Growth And 24% ROE

At first glance, Jamjoom Pharmaceuticals Factory seems to have a decent ROE. Further, the company's ROE compares quite favorably to the industry average of 9.6%. This probably laid the ground for Jamjoom Pharmaceuticals Factory's moderate 17% net income growth seen over the past five years.

We then compared Jamjoom Pharmaceuticals Factory'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 9.9% in the same 5-year period.

Earnings growth is an important metric to consider when valuing a stock. 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. If you're wondering about Jamjoom Pharmaceuticals Factory's's valuation, check out this gauge of its price-to-earnings ratio, as compared to its industry.

Is Jamjoom Pharmaceuticals Factory Making Efficient Use Of Its Profits?

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.

Along with seeing a growth in earnings, Jamjoom Pharmaceuticals Factory only recently started paying dividends. Its quite possible that the company was looking to impress its shareholders. 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%. Accordingly, forecasts suggest that Jamjoom Pharmaceuticals Factory's future ROE will be 24% which is again, similar to the current ROE.

Conclusion

In total, we are pretty happy with Jamjoom Pharmaceuticals Factory's performance. We are particularly impressed by the considerable earnings growth posted by the company, which was likely backed by its high ROE. While the company is paying out most of its earnings as dividends, it has been able to grow its earnings in spite of it, so that's probably a good sign. With that said, the latest industry analyst forecasts reveal that the company's earnings growth is expected to slow down. 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.