Dubai Electricity and Water Authority (PJSC)'s (DFM:DEWA) Stock Financial Prospects Look Bleak: Should Shareholders Be Prepared For A Share Price Correction?

Dubai Electricity and Water Authority (PJSC)'s (DFM:DEWA) stock up by 3.6% over the past three months. Given that the markets usually pay for the long-term financial health of a company, we wonder if the current momentum in the share price will keep up, given that the company's financials don't look very promising. In this article, we decided to focus on Dubai Electricity and Water Authority (PJSC)'s ROE.

Return on equity or ROE is a key measure used to assess how efficiently a company's management is utilizing the company's capital. Put another way, it reveals the company's success at turning shareholder investments into profits.

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How Is ROE Calculated?

Return on equity can be calculated by using the formula:

Return on Equity = Net Profit (from continuing operations) ÷ Shareholders' Equity

So, based on the above formula, the ROE for Dubai Electricity and Water Authority (PJSC) is:

8.9% = د.إ8.6b ÷ د.إ96b (Based on the trailing twelve months to September 2025).

The 'return' refers to a company's earnings over the last year. That means that for every AED1 worth of shareholders' equity, the company generated AED0.09 in profit.

View our latest analysis for Dubai Electricity and Water Authority (PJSC)

What Has ROE Got To Do With 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. 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 Dubai Electricity and Water Authority (PJSC)'s Earnings Growth And 8.9% ROE

As you can see, Dubai Electricity and Water Authority (PJSC)'s ROE looks pretty weak. An industry comparison shows that the company's ROE is not much different from the industry average of 7.6% either. Therefore, the low net income growth of 4.7% seen by Dubai Electricity and Water Authority (PJSC) over the past five years could probably be the result of it having a lower ROE.

Next, on comparing with the industry net income growth, we found that Dubai Electricity and Water Authority (PJSC)'s reported growth was lower than the industry growth of 12% over the last few years, which is not something we like to see.

Earnings growth is an important metric to consider when valuing a stock. 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. If you're wondering about Dubai Electricity and Water Authority (PJSC)'s's valuation, check out this gauge of its price-to-earnings ratio, as compared to its industry.

Is Dubai Electricity and Water Authority (PJSC) Using Its Retained Earnings Effectively?

With a high three-year median payout ratio of 81% (or a retention ratio of 19%), most of Dubai Electricity and Water Authority (PJSC)'s profits are being paid to shareholders. This definitely contributes to the low earnings growth seen by the company.

In addition, Dubai Electricity and Water Authority (PJSC) has been paying dividends over a period of three years suggesting that keeping up dividend payments is way more important to the management even if it comes at the cost of business growth. Upon studying the latest analysts' consensus data, we found that the company is expected to keep paying out approximately 77% of its profits over the next three years. As a result, Dubai Electricity and Water Authority (PJSC)'s ROE is not expected to change by much either, which we inferred from the analyst estimate of 9.4% for future ROE.

Summary

On the whole, Dubai Electricity and Water Authority (PJSC)'s performance is quite a big let-down. Because the company is not reinvesting much into the business, and given the low ROE, it's not surprising to see the lack or absence of growth in its earnings. We also studied the latest analyst forecasts and found that the company's earnings growth is expected be similar to its current growth rate. To know more about the company's future earnings growth forecasts take a look at this free report on analyst forecasts for the company to find out more.

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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.