SAL Saudi Logistics Services Company's (TADAWUL:4263) Stock Has Been Sliding But Fundamentals Look Strong: Is The Market Wrong?

It is hard to get excited after looking at SAL Saudi Logistics Services' (TADAWUL:4263) recent performance, when its stock has declined 10% over the past three months. But if you pay close attention, you might gather that its strong financials could mean that the stock could potentially see an increase in value in the long-term, given how markets usually reward companies with good financial health. Specifically, we decided to study SAL Saudi Logistics Services' ROE in this article.

Return on equity or ROE is an important factor to be considered by a shareholder because it tells them how effectively their capital is being reinvested. Put another way, it reveals the company's success at turning shareholder investments into profits.

View our latest analysis for SAL Saudi Logistics Services

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 SAL Saudi Logistics Services is:

51% = ر.س700m ÷ ر.س1.4b (Based on the trailing twelve months to September 2024).

The 'return' is the income the business earned over the last year. So, this means that for every SAR1 of its shareholder's investments, the company generates a profit of SAR0.51.

Why Is ROE Important For Earnings Growth?

Thus far, we have learned that ROE measures how efficiently a company is generating its profits. We now need to evaluate how much profit the company reinvests or "retains" for future growth which then gives us an idea about the growth potential of the company. 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.

SAL Saudi Logistics Services' Earnings Growth And 51% ROE

First thing first, we like that SAL Saudi Logistics Services has an impressive ROE. Secondly, even when compared to the industry average of 7.8% the company's ROE is quite impressive. Under the circumstances, SAL Saudi Logistics Services' considerable five year net income growth of 30% was to be expected.

Next, on comparing with the industry net income growth, we found that SAL Saudi Logistics Services' growth is quite high when compared to the industry average growth of 10% in the same period, which is great to see.

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. Doing so will help them establish if the stock's future looks promising or ominous. If you're wondering about SAL Saudi Logistics Services''s valuation, check out this gauge of its price-to-earnings ratio, as compared to its industry.

Is SAL Saudi Logistics Services Using Its Retained Earnings Effectively?

The three-year median payout ratio for SAL Saudi Logistics Services is 50%, which is moderately low. The company is retaining the remaining 50%. By the looks of it, the dividend is well covered and SAL Saudi Logistics Services is reinvesting its profits efficiently as evidenced by its exceptional growth which we discussed above.

While SAL Saudi Logistics Services 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.

Conclusion

Overall, we are quite pleased with SAL Saudi Logistics Services' performance. Specifically, we like that the company is reinvesting a huge chunk of its profits at a high rate of return. This of course has caused the company to see substantial growth in its earnings. 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. 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.