Do Its Financials Have Any Role To Play In Driving Dar Al Arkan Real Estate Development Company's (TADAWUL:4300) Stock Up Recently?

Most readers would already be aware that Dar Al Arkan Real Estate Development's (TADAWUL:4300) stock increased significantly by 8.4% over the past month. As most would know, fundamentals are what usually guide market price movements over the long-term, so we decided to look at the company's key financial indicators today to determine if they have any role to play in the recent price movement. Particularly, we will be paying attention to Dar Al Arkan Real Estate Development's ROE today.

Return on Equity or ROE is a test of how effectively a company is growing its value and managing investors’ money. In other words, it is a profitability ratio which measures the rate of return on the capital provided by the company's shareholders.

Check out our latest analysis for Dar Al Arkan Real Estate Development

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 Dar Al Arkan Real Estate Development is:

3.1% = ر.س648m ÷ ر.س21b (Based on the trailing twelve months to September 2024).

The 'return' is the income the business earned over the last year. That means that for every SAR1 worth of shareholders' equity, the company generated SAR0.03 in profit.

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 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 Dar Al Arkan Real Estate Development's Earnings Growth And 3.1% ROE

It is quite clear that Dar Al Arkan Real Estate Development's ROE is rather low. Even compared to the average industry ROE of 11%, the company's ROE is quite dismal. In spite of this, Dar Al Arkan Real Estate Development was able to grow its net income considerably, at a rate of 32% in the last five years. Therefore, there could be other reasons behind this growth. For instance, the company has a low payout ratio or is being managed efficiently.

Next, on comparing with the industry net income growth, we found that Dar Al Arkan Real Estate Development's growth is quite high when compared to the industry average growth of 22% in the same period, which is great to see.

Earnings growth is an important metric to consider when valuing a stock. 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. One good indicator of expected earnings growth is the P/E ratio which determines the price the market is willing to pay for a stock based on its earnings prospects. So, you may want to check if Dar Al Arkan Real Estate Development is trading on a high P/E or a low P/E, relative to its industry.

Is Dar Al Arkan Real Estate Development Efficiently Re-investing Its Profits?

Given that Dar Al Arkan Real Estate Development doesn't pay any regular dividends to its shareholders, we infer that the company has been reinvesting all of its profits to grow its business.

Summary

Overall, we feel that Dar Al Arkan Real Estate Development certainly does have some positive factors to consider. Even in spite of the low rate of return, the company has posted impressive earnings growth as a result of reinvesting heavily into its business.

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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.