Are Robust Financials Driving The Recent Rally In Aldrees Petroleum and Transport Services Company's (TADAWUL:4200) Stock?

Most readers would already be aware that Aldrees Petroleum and Transport Services' (TADAWUL:4200) stock increased significantly by 17% over the past month. 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 Aldrees Petroleum and Transport Services' ROE.

Return on equity or ROE is a key measure used to assess how efficiently a company's management is utilizing the company's capital. 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 ROE is:

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

So, based on the above formula, the ROE for Aldrees Petroleum and Transport Services is:

25% = ر.س378m ÷ ر.س1.5b (Based on the trailing twelve months to June 2025).

The 'return' refers to a company's earnings over the last year. One way to conceptualize this is that for each SAR1 of shareholders' capital it has, the company made SAR0.25 in profit.

View our latest analysis for Aldrees Petroleum and Transport Services

What Has ROE Got To Do With 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.

Aldrees Petroleum and Transport Services' Earnings Growth And 25% ROE

At first glance, Aldrees Petroleum and Transport Services seems to have a decent ROE. Further, the company's ROE compares quite favorably to the industry average of 12%. This probably laid the ground for Aldrees Petroleum and Transport Services' moderate 14% net income growth seen over the past five years.

When you consider the fact that the industry earnings have shrunk at a rate of 2.0% in the same 5-year period, the company's net income growth is pretty remarkable.

The basis for attaching value to a company is, to a great extent, tied to its earnings growth. It’s important for an investor to know whether the market has priced in the company's expected earnings growth (or decline). This then helps them determine if the stock is placed for a bright or bleak future. If you're wondering about Aldrees Petroleum and Transport Services''s valuation, check out this gauge of its price-to-earnings ratio, as compared to its industry.

Is Aldrees Petroleum and Transport Services Making Efficient Use Of Its Profits?

Aldrees Petroleum and Transport Services has a three-year median payout ratio of 44%, which implies that it retains the remaining 56% of its profits. This suggests that its dividend is well covered, and given the decent growth seen by the company, it looks like management is reinvesting its earnings efficiently.

Additionally, Aldrees Petroleum and Transport Services has paid dividends over a period of at least ten years which means that the company is pretty serious about sharing its profits with shareholders. Our latest analyst data shows that the future payout ratio of the company is expected to rise to 61% over the next three years. Despite the higher expected payout ratio, the company's ROE is not expected to change by much.

Conclusion

In total, we are pretty happy with Aldrees Petroleum and Transport Services' performance. In particular, it's great to see that the company is investing heavily into its business and along with a high rate of return, that has resulted in a sizeable growth in its earnings. On studying current analyst estimates, we found that analysts expect the company to continue its recent growth streak. 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.