April 23, 2024
Property

Can Alandalus Property Company’s (TADAWUL:4320) Weak Financials Pull The Plug On The Stock’s Current Momentum On Its Share Price?


Alandalus Property (TADAWUL:4320) has had a great run on the share market with its stock up by a significant 12% over the last week. However, we decided to pay close attention to its weak financials as we are doubtful that the current momentum will keep up, given the scenario. Specifically, we decided to study Alandalus Property’s ROE in this article.

Return on Equity or ROE is a test of how effectively a company is growing its value and managing investors’ money. Put another way, it reveals the company’s success at turning shareholder investments into profits.

View our latest analysis for Alandalus Property

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 Alandalus Property is:

5.1% = ر.س62m ÷ ر.س1.2b (Based on the trailing twelve months to September 2023).

The ‘return’ is the profit over the last twelve months. So, this means that for every SAR1 of its shareholder’s investments, the company generates a profit of SAR0.05.

Why Is ROE Important For Earnings Growth?

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

Alandalus Property’s Earnings Growth And 5.1% ROE

It is quite clear that Alandalus Property’s ROE is rather low. Even compared to the average industry ROE of 7.0%, the company’s ROE is quite dismal. Accordingly, Alandalus Property’s low net income growth of 5.0% over the past five years can possibly be explained by the low ROE amongst other factors.

We then compared Alandalus Property’s net income growth with the industry and found that the company’s growth figure is lower than the average industry growth rate of 6.4% in the same 5-year period, which is a bit concerning.

SASE:4320 Past Earnings Growth January 5th 2024

Earnings growth is an important metric to consider when valuing a stock. The investor should try to establish if the expected growth or decline in earnings, whichever the case may be, is priced in. By doing so, they will have an idea if the stock is headed into clear blue waters or if swampy waters await. Is Alandalus Property fairly valued compared to other companies? These 3 valuation measures might help you decide.

Is Alandalus Property Efficiently Re-investing Its Profits?

The high three-year median payout ratio of 82% (that is, the company retains only 18% of its income) over the past three years for Alandalus Property suggests that the company’s earnings growth was lower as a result of paying out a majority of its earnings.

In addition, Alandalus Property has been paying dividends over a period of six years suggesting that keeping up dividend payments is way more important to the management even if it comes at the cost of business growth.

Summary

In total, we would have a hard think before deciding on any investment action concerning Alandalus Property. The company has seen a lack of earnings growth as a result of retaining very little profits and whatever little it does retain, is being reinvested at a very low rate of return. In brief, we think the company is risky and investors should think twice before making any final judgement on this company. You can see the 2 risks we have identified for Alandalus Property by visiting our risks dashboard for free on our platform here.

Valuation is complex, but we’re helping make it simple.

Find out whether Alandalus Property is potentially over or undervalued by checking out our comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, insider transactions and financial health.

View the Free Analysis

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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