Jarir Marketing Company (TADAWUL:4190) Is Going Strong But Fundamentals Appear To Be Mixed : Is There A Clear Direction For The Stock?

Jarir Marketing (TADAWUL:4190) has had a great run on the share market with its stock up by a significant 11% 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. In this article, we decided to focus on Jarir Marketing'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.

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How Is ROE Calculated?

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 Jarir Marketing is:

60% = ر.س998m ÷ ر.س1.7b (Based on the trailing twelve months to June 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 SAR0.60.

Check out our latest analysis for Jarir Marketing

What Has ROE Got To Do With Earnings Growth?

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

A Side By Side comparison of Jarir Marketing's Earnings Growth And 60% ROE

First thing first, we like that Jarir Marketing has an impressive ROE. Additionally, the company's ROE is higher compared to the industry average of 13% which is quite remarkable. Despite this, Jarir Marketing's five year net income growth was quite flat over the past five years. Based on this, we feel that there might be other reasons which haven't been discussed so far in this article that could be hampering the company's growth. These include low earnings retention or poor allocation of capital

Next, we compared Jarir Marketing's performance against the industry and found that the industry shrunk its earnings at 2.0% in the same period, which suggests that the company's earnings have been shrinking at a slower rate than its industry, While this is not particularly good, its not particularly bad either.

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. Is Jarir Marketing fairly valued compared to other companies? These 3 valuation measures might help you decide.

Is Jarir Marketing Efficiently Re-investing Its Profits?

Jarir Marketing has a three-year median payout ratio as high as 102% meaning that the company is paying a dividend which is beyond its means. The absence of growth in Jarir Marketing's earnings therefore, doesn't come as a surprise. Paying a dividend beyond their means is usually not viable over the long term. This is quite a risky position to be in.

Moreover, Jarir Marketing has been paying dividends for nine years, which is a considerable amount of time, suggesting that management must have perceived that the shareholders prefer dividends over earnings growth. Our latest analyst data shows that the future payout ratio of the company over the next three years is expected to be approximately 94%. Accordingly, forecasts suggest that Jarir Marketing's future ROE will be 60% which is again, similar to the current ROE.

Summary

On the whole, we feel that the performance shown by Jarir Marketing can be open to many interpretations. Despite the high ROE, the company has a disappointing earnings growth number, due to its poor rate of reinvestment into its business. Having said that, looking at current analyst estimates, we found that the company's earnings growth rate is expected to see a huge improvement. To know more about the latest analysts predictions for the company, check out this visualization of analyst forecasts 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.