Could weak financial data from the National Shipping Company of Saudi Arabia (TADAWUL: 4030) mean that the market may correct its share price?

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The share of the National Shipping Company of Saudi Arabia (TADAWUL: 4030) rose 1.3% in the past week. Given that markets typically pay for a company’s long-term financial health, we wonder if the current stock price momentum will hold up, given that the company’s financial data doesn’t look very promising. . Specifically, we decided to study the ROE of the National Shipping Company of Saudi Arabia in this article.

Return on equity or ROE is a test of how effectively a company increases its value and manages investor money. In short, the ROE shows the profit that each dollar generates compared to the investments of its shareholders.

See our latest review for National Shipping Company of Saudi Arabia

How do you calculate return on equity?

ROE can be calculated using the formula:

Return on equity = Net income (from continuing operations) ÷ Equity

So, based on the above formula, the ROE of the National Shipping Company of Saudi Arabia is:

5.0% = ر.س 507 m ÷ ر.س 10 b (Based on the last twelve months up to June 2021).

The “return” is the profit of the last twelve months. This means that for every SAR1 value of equity, the company generated profit SAR0.05.

What does ROE have to do with profit growth?

So far we’ve learned that ROE is a measure of a company’s profitability. Based on how much of those profits the company reinvests or “withholds” and how efficiently it does so, we are then able to assess a company’s profit growth potential. Assuming everything else is equal, companies that have both a higher return on equity and higher profit retention are generally those that have a higher growth rate than companies that do not have the same characteristics.

Profit growth of the National Shipping Company of Saudi Arabia and 5.0% ROE

As you can see, the ROE of the National Shipping Company of Saudi Arabia seems quite low. Even compared to the industry average of 11%, the ROE figure is quite disappointing. Given the circumstances, the significant drop in net profit of 11% seen by the National Shipping Company of Saudi Arabia over the past five years is not surprising. However, other factors can also lead to lower income. For example, the company has a very high payout ratio or faces competitive pressures.

That being said, we compared the performance of the National Shipping Company of Saudi Arabia with that of the industry and we were concerned that although the company reduced its profits, the industry increased its profits to a low. rate of 1.8% over the same period.

SASE: 4030 Past Profit Growth September 7, 2021

The basis for attaching value to a business is, to a large extent, related to the growth of its profits. What investors next need to determine is whether the expected earnings growth, or lack thereof, is already built into the share price. By doing this, they will have an idea if the stock is heading for clear blue waters or if swampy waters are ahead of them. 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. So, you might want to check if the National Shipping Company of Saudi Arabia is trading high P / E or low P / E, relative to their industry.

Is Saudi Arabia’s National Shipping Company Efficiently Using Profits?

With a high three-year median payout rate of 95% (implying that 4.8% of profits are retained), most of the profits of the National Shipping Company of Saudi Arabia go to shareholders, which explains the decline. of company profits. With only a little money reinvested in the business, earnings growth would obviously be little or no. You can see the 4 risks we have identified for National Shipping Company of Saudi Arabia by visiting our risk dashboard for free on our platform here.

In addition, the National Shipping Company of Saudi Arabia has paid dividends over a period of at least ten years, suggesting that sustaining dividend payments is much more important to management, even if it comes at the expense of business growth.

Conclusion

Overall, we would be extremely careful before making a decision on National Shipping Company of Saudi Arabia. In particular, his ROE is a huge disappointment, not to mention his lack of proper reinvestment in the business. As a result, its profit growth has also been quite disappointing. So far, we’ve only done a brief review of the company’s growth data. To learn more about the past earnings growth of the National Shipping Company of Saudi Arabia, check out this visualization of past earnings, revenue, and cash flow.

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This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts using only unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell shares and does not take into account your goals or your financial situation. Our aim is to bring you long-term, targeted analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price sensitive companies or qualitative documents. Simply Wall St has no position in the mentioned stocks.
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