National Gas and Industrialization Company's (TADAWUL:2080) Stock Is Going Strong: Have Financials A Role To Play?

Most readers would already be aware that National Gas and Industrialization's (TADAWUL:2080) stock increased significantly by 5.8% 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. In this article, we decided to focus on National Gas and Industrialization's ROE.

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. In simpler terms, it measures the profitability of a company in relation to shareholder's equity.

View our latest analysis for National Gas and Industrialization

How To Calculate Return On Equity?

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 National Gas and Industrialization is:

13% = ر.س239m ÷ ر.س1.8b (Based on the trailing twelve months to September 2023).

The 'return' is the profit over the last twelve months. That means that for every SAR1 worth of shareholders' equity, the company generated SAR0.13 in profit.

What Has ROE Got To Do With Earnings Growth?

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

National Gas and Industrialization's Earnings Growth And 13% ROE

As you can see, National Gas and Industrialization's ROE looks pretty weak. However, the fact that it is higher than the industry average of 10% makes us a bit more interested. Even more so, after seeing National Gas and Industrialization's exceptional 22% net income growth over the past five years. That being said, the company does have a low ROE to begin with, just that its higher than the industry average. Hence, there might be some other aspects that are causing earnings to grow. For instance, the company has a low payout ratio or is being managed efficiently

We then compared National Gas and Industrialization's net income growth with the industry and we're pleased to see that the company's growth figure is higher when compared with the industry which has a growth rate of 7.2% in the same 5-year period.

Earnings growth is a huge factor in stock valuation. The investor should try to establish if the expected growth or decline in earnings, whichever the case may be, is priced in. Doing so will help them establish if the stock's future looks promising or ominous. Is National Gas and Industrialization fairly valued compared to other companies? These 3 valuation measures might help you decide.

Is National Gas and Industrialization Making Efficient Use Of Its Profits?

National Gas and Industrialization has a significant three-year median payout ratio of 57%, meaning the company only retains 43% of its income. This implies that the company has been able to achieve high earnings growth despite returning most of its profits to shareholders.

Besides, National Gas and Industrialization has been paying dividends for at least ten years or more. This shows that the company is committed to sharing profits with its shareholders.

Conclusion

On the whole, we do feel that National Gas and Industrialization has some positive attributes. Specifically, its respectable ROE which likely led to the considerable growth in earnings. 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. So far, we've only made a quick discussion around the company's earnings growth. To gain further insights into National Gas and Industrialization's past profit growth, check out this visualization of past earnings, revenue and cash flows.

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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.