SAL Saudi Logistics Services Company's (TADAWUL:4263) Stock Is Going Strong: Is the Market Following Fundamentals?

SAL Saudi Logistics Services (TADAWUL:4263) has had a great run on the share market with its stock up by a significant 7.0% over the last month. Given the company's impressive performance, we decided to study its financial indicators more closely as a company's financial health over the long-term usually dictates market outcomes. Particularly, we will be paying attention to SAL Saudi Logistics Services' ROE today.

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.

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How To Calculate Return On Equity?

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 SAL Saudi Logistics Services is:

41% = ر.س613m ÷ ر.س1.5b (Based on the trailing twelve months to June 2025).

The 'return' is the income the business earned over the last year. Another way to think of that is that for every SAR1 worth of equity, the company was able to earn SAR0.41 in profit.

View our latest analysis for SAL Saudi Logistics Services

Why Is ROE Important For Earnings Growth?

Thus far, we have learned that ROE measures how efficiently a company is generating its profits. 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. 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.

SAL Saudi Logistics Services' Earnings Growth And 41% ROE

To begin with, SAL Saudi Logistics Services has a pretty high ROE which is interesting. Second, a comparison with the average ROE reported by the industry of 8.2% also doesn't go unnoticed by us. Under the circumstances, SAL Saudi Logistics Services' considerable five year net income growth of 24% was to be expected.

As a next step, we compared SAL Saudi Logistics Services' net income growth with the industry, and pleasingly, we found that the growth seen by the company is higher than the average industry growth of 7.2%.

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. By doing so, they will have an idea if the stock is headed into clear blue waters or if swampy waters await. 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?

SAL Saudi Logistics Services' significant three-year median payout ratio of 71% (where it is retaining only 29% of its income) suggests that the company has been able to achieve a high growth in earnings despite returning most of its income to shareholders.

Along with seeing a growth in earnings, SAL Saudi Logistics Services only recently started paying dividends. Its quite possible that the company was looking to impress its shareholders.

Summary

Overall, we are quite pleased with SAL Saudi Logistics Services' performance. In particular, its high ROE is quite noteworthy and also the probable explanation behind its considerable earnings growth. Yet, the company is retaining a small portion of its profits. Which means that the company has been able to grow its earnings in spite of it, so that's not too bad. Having said that, the company's earnings growth is expected to slow down, as forecasted in the current analyst estimates. 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.