Dr. Sulaiman Al Habib’s Medical Services Group (TADAWUL: 4013) has had a strong run in the stock market, with its stock rising 5.2% over the past month. Given the company’s impressive performance, we decided to take a closer look at its financial metrics, as a company’s long-term financial health usually dictates market outcomes. In particular, we will pay attention today to the ROE of Dr. Sulaiman Al Habib Medical Services Group.
ROE or return on equity is a useful tool for evaluating how effectively a company can generate returns on the investment it has received from its shareholders. In other words, it reveals the company’s success in turning shareholders’ investments into profits.
Check out our latest analysis for Dr. Sulaiman Al Habib Medical Services Group
How do you calculate return on equity?
Return on equity can be calculated using the formula:
Return on equity = Net income (from continuing operations) ÷ Equity
So, based on the above formula, the ROE for Dr. Sulaiman Al Habib Medical Services Group is:
24% = ر.س1.3b ÷ ر.س5.4b (Based on the last twelve months to September 2021).
The “return” is the annual profit. Another way to think about this is that for every 1 SAR worth of equity, the company was able to make a profit of 0.24 SAR.
Why is ROE important for earnings growth?
We have already established that ROE serves as an effective profit-generating indicator for a company’s future earnings. We now need to assess how much profit the company is reinvesting or “retaining” for future growth, which then gives us an idea of the company’s growth potential. Assuming everything else remains unchanged, the higher the ROE and earnings retention, the higher a company’s growth rate compared to companies that don’t necessarily exhibit these characteristics.
Dr. Sulaiman Al Habib Medical Services Group profit growth and ROE of 24%
For starters, Dr. Sulaiman Al Habib Medical Services Group seems to have a respectable ROE. Compared to the industry average ROE of 10%, the company’s ROE looks quite remarkable. Probably because of this, Dr. Sulaiman Al Habib Medical Services Group was able to see a decent growth of 9.6% over the past five years.
We then performed a comparison of the net income growth of Dr. Sulaiman Al Habib Medical Services Group with the industry, which revealed that the company’s growth is similar to the average industry growth of 9.6 % over the same period.
Earnings growth is an important factor in stock valuation. It is important for an investor to know whether the market has priced in the expected growth (or decline) in the company’s earnings. This will help them determine if the future of the title looks bright or ominous. A good indicator of expected earnings growth is the P/E ratio which determines the price the market is willing to pay for a stock based on its earnings outlook. Thus, you might want to check if Dr. Sulaiman Al Habib Medical Services Group is trading on a high P/E or a low P/E, relative to its industry.
Is Dr. Sulaiman Al Habib’s Medical Services Group Using Retained Earnings Effectively?
Although Dr. Sulaiman Al Habib’s medical services group has a three-year median payout ratio of 70% (meaning it retains 30% of profits), the company has still seen good growth in its earnings. earnings in the past, which means that its high payout ratio has not hampered its ability to grow.
Although Dr. Sulaiman Al Habib Medical Services Group has increased its profits, it has only recently started paying dividends, which likely means the company has decided to impress new and existing shareholders with a dividend. Based on the latest analyst estimates, we found that the company’s future payout ratio over the next three years is expected to remain stable at 61%. As a result, forecasts suggest that the future ROE of Dr. Sulaiman Al Habib Medical Services Group will be 25%, which is again similar to the current ROE.
Overall, we believe that the performance of Dr. Sulaiman Al Habib Medical Services Group has been quite good. Especially the high ROE, which contributed to the impressive earnings growth. Although the company reinvests only a small portion of its profits, it has still managed to grow its profits, which is appreciable. That said, a study of the latest analyst forecasts shows that the company should see a slowdown in future earnings growth. Are these analyst expectations based on general industry expectations or company fundamentals? Click here to access our analyst forecast page for the company.
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This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts only using unbiased methodology and our articles are not intended to be financial advice. It is not a recommendation to buy or sell stocks and does not take into account your objectives or financial situation. Our goal is to bring you targeted long-term analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price-sensitive companies or qualitative materials. Simply Wall St has no position in the stocks mentioned.