Shares of Dr. Sulaiman Al Habib Medical Services Group (TADAWUL:4013) are up 19% over the past three months. Given that the market rewards strong long-term financials, we wonder if this is the case in this case. In particular, we will pay attention today to the ROE of Dr. Sulaiman Al Habib Medical Services Group.
Return on Equity or ROE is a test of how effectively a company increases its value and manages investors’ money. In simple terms, it is used to assess the profitability of a company in relation to its equity.
See our latest analysis for Dr. Sulaiman Al Habib Medical Services Group
How to calculate return on equity?
The ROE formula is:
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:
27% = ر.س1.5b ÷ ر.س5.8b (Based on the last twelve months to June 2022).
The “return” is the annual profit. This means that for every SAR1 of equity, the company generated 0.27 SAR of profit.
Why is ROE important for earnings growth?
So far we have learned that ROE is a measure of a company’s profitability. Depending on how much of those earnings the company reinvests or “keeps”, and how efficiently 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 better earnings retention are generally the ones with a higher growth rate compared to companies that don’t. same characteristics.
Dr. Sulaiman Al Habib Medical Services Group profit growth and ROE of 27%
At first glance, Dr. Sulaiman Al Habib Medical Services Group seems to have a decent ROE. Compared to the industry average ROE of 17%, the company’s ROE looks quite remarkable. This certainly adds some context to Dr. Sulaiman Al Habib Medical Services Group’s decent 19% net income growth over the past five years.
In a next step, we benchmarked the net income growth of Dr. Sulaiman Al Habib Medical Services Group with the industry, and fortunately, we found that the growth observed by the company is higher than the average growth in the industry. industry by 5.3%.
The basis for attaching value to a company is, to a large extent, linked to the growth of its profits. What investors then need to determine is whether the expected earnings growth, or lack thereof, is already priced into the stock price. This then helps them determine if the stock is positioned for a bright or bleak future. If you’re wondering about the valuation of Dr. Sulaiman Al Habib’s medical services group, check out this indicator of its price-earnings ratio, relative to its industry.
Is Dr. Sulaiman Al Habib’s Medical Services Group Effectively Using Its Retained Earnings?
The high three-year median payout rate of 71% (or a retention rate of 29%) for Dr. Sulaiman Al Habib Medical Services Group suggests that the company’s growth has not been significantly hampered despite the return of most of its income to its shareholders.
Although Dr. Sulaiman Al Habib Medical Services Group has increased its profits, it only recently started paying dividends, which likely means the company has decided to impress new and existing shareholders with a dividend. After reviewing the latest analyst consensus data, we found that the company is expected to continue to pay out approximately 71% of its earnings over the next three years. As a result, forecasts suggest that the future ROE of Dr. Sulaiman Al Habib Medical Services Group will be 28%, 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. In particular, its high ROE is quite remarkable and also the probable explanation for its considerable earnings growth. Yet the company retains a small portion of its profits. Which means the company was able to increase its profits despite this, so it’s not that bad. That said, the company’s earnings growth is expected to slow, as expected in current analyst estimates. 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.