Walaa Cooperative Insurance Company's (TADAWUL:8060) Fundamentals Look Pretty Strong: Could The Market Be Wrong About The Stock?

Simply Wall St · 10/16 03:02

Walaa Cooperative Insurance (TADAWUL:8060) has had a rough three months with its share price down 21%. But if you pay close attention, you might find that its key financial indicators look quite decent, which could mean that the stock could potentially rise in the long-term given how markets usually reward more resilient long-term fundamentals. Specifically, we decided to study Walaa Cooperative Insurance'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. In other words, it is a profitability ratio which measures the rate of return on the capital provided by the company's shareholders.

View our latest analysis for Walaa Cooperative Insurance

How Do You 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 Walaa Cooperative Insurance is:

11% = ر.س149m ÷ ر.س1.3b (Based on the trailing twelve months to June 2024).

The 'return' is the yearly profit. So, this means that for every SAR1 of its shareholder's investments, the company generates a profit of SAR0.11.

What Is The Relationship Between ROE And 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 everything else remains unchanged, the higher the ROE and profit retention, the higher the growth rate of a company compared to companies that don't necessarily bear these characteristics.

A Side By Side comparison of Walaa Cooperative Insurance's Earnings Growth And 11% ROE

It is hard to argue that Walaa Cooperative Insurance's ROE is much good in and of itself. Further, we noted that the company's ROE is similar to the industry average of 11%. As a result, Walaa Cooperative Insurance's decent 18% net income growth seen over the past five years bodes well with us. We reckon that there could also be other factors at play that are influencing the company's growth. For instance, the company has a low payout ratio or is being managed efficiently.

As a next step, we compared Walaa Cooperative Insurance's net income growth with the industry and found that the company has a similar growth figure when compared with the industry average growth rate of 20% in the same period.

past-earnings-growth
SASE:8060 Past Earnings Growth October 16th 2024

The basis for attaching value to a company is, to a great extent, tied to its earnings growth. What investors need to determine next is if the expected earnings growth, or the lack of it, is already built into the share price. By doing so, they will have an idea if the stock is headed into clear blue waters or if swampy waters await. Is Walaa Cooperative Insurance fairly valued compared to other companies? These 3 valuation measures might help you decide.

Is Walaa Cooperative Insurance Making Efficient Use Of Its Profits?

Walaa Cooperative Insurance doesn't pay any regular dividends, meaning that all of its profits are being reinvested in the business, which explains the fair bit of earnings growth the company has seen.

Conclusion

In total, it does look like Walaa Cooperative Insurance has some positive aspects to its business. Even in spite of the low rate of return, the company has posted impressive earnings growth as a result of reinvesting heavily into its business. While we won't completely dismiss the company, what we would do, is try to ascertain how risky the business is to make a more informed decision around the company. Our risks dashboard will have the 1 risk we have identified for Walaa Cooperative Insurance.