Declining Stock and Decent Financials: Is The Market Wrong About National Industrialization Company (TADAWUL:2060)? - Simply Wall St - Financial Daily News Site

Declining Stock and Decent Financials: Is The Market Wrong About National Industrialization Company (TADAWUL:2060)? – Simply Wall St

National Industrialization (TADAWUL:2060) has had a rough three months with its share price down 11%. However, the company’s fundamentals look pretty decent, and long-term financials are usually aligned with future market price movements. In this article, we decided to focus on National Industrialization’s 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 other words, it is a profitability ratio which measures the rate of return on the capital provided by the company’s shareholders.

Check out our latest analysis for National Industrialization

How Is ROE Calculated?

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 Industrialization is:

16% = ر.س2.0b ÷ ر.س12b (Based on the trailing twelve months to March 2022).

The ‘return’ is the amount earned after tax over the last twelve months. One way to conceptualize this is that for each SAR1 of shareholders’ capital it has, the company made SAR0.16 in profit.

Why Is ROE Important For Earnings Growth?

So far, we’ve learned that ROE is a measure of a company’s profitability. 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. 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 Industrialization’s Earnings Growth And 16% ROE

On the face of it, National Industrialization’s ROE is not much to talk about. However, its ROE is similar to the industry average of 16%, so we won’t completely dismiss the company. Having said that, National Industrialization has shown a meagre net income growth of 3.6% over the past five years. Remember, the company’s ROE is not particularly great to begin with. Hence, this does provide some context to low earnings growth seen by the company.

We then performed a comparison between National Industrialization’s net income growth with the industry, which revealed that the company’s growth is similar to the average industry growth of 3.3% in the same period.

past-earnings-growth
SASE:2060 Past Earnings Growth May 28th 2022

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. This then helps them determine if the stock is placed for a bright or bleak future. Has the market priced in the future outlook for 2060? You can find out in our latest intrinsic value infographic research report.

Is National Industrialization Efficiently Re-investing Its Profits?

National Industrialization doesn’t pay any dividend currently which essentially means that it has been reinvesting all of its profits into the business. This doesn’t explain the low earnings growth number that we discussed above. Therefore, there might be some other reasons to explain the lack in that respect. For example, the business could be in decline.

Summary

On the whole, we do feel that National Industrialization has some positive attributes. Namely, its respectable earnings growth, which it achieved due to it retaining most of its profits. However, given the low ROE, investors may not be benefitting from all that reinvestment after all. 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 company’s future earnings growth forecasts take a look at this free report on analyst forecasts for the company to find out more.

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.

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