Mixed financials and market sentiment for Al Khaleej Takaful Insurance Company QPSC

Al Khaleej Takaful Insurance Company QPSC (DSM:AKHI) had a tough three months with its share price falling 24%. However, we decided to examine the company’s financials to see if they had anything to do with the price decline. Stock prices are typically determined by a company’s financial performance over the long term, and that is why we have decided to pay more attention to the company’s financial performance. In this article, we have decided to focus on the ROE of Al Khaleej Takaful Insurance Company QPSC.

Return on Equity or ROE is an important factor to consider by a shareholder as it tells them how effectively their capital is being reinvested. In other words, it is a profitability metric that measures the return on capital provided by the company’s shareholders.

View our latest analysis for Al Khaleej Takaful Insurance Company QPSC

How do you calculate return on equity?

The return on equity can be calculated using the following formula:

Return on Equity = Net Income (from continuing operations) ÷ Equity

So, based on the above formula, the ROE for Al Khaleej Takaful Insurance Company QPSC is:

7.8% = ر 43 million ÷ ر 551 million, ق (Based on the trailing 12 months to September 2022).

The “return” is the annual profit. One way to think of this is that the company earns QAR0.08 profit for every QAR1 of shareholder capital it has.

Why is ROE important for earnings growth?

So far we’ve learned that ROE measures how efficiently a company generates its profits. We now need to evaluate how much profit the company is reinvesting or “keeping” for future growth, which then gives us an idea of ​​the company’s growth potential. Assuming all else remains the same, the higher the ROE and earnings retention, the higher a company’s growth rate compared to companies that don’t necessarily exhibit these characteristics.

A head-to-head comparison of Al Khaleej Takaful Insurance Company QPSC’s 7.8% earnings growth and ROE

It’s hard to argue that Al Khaleej Takaful Insurance Company QPSC’s ROE is very good in and of itself. An industry comparison shows that the company’s ROE is not significantly different from the industry average of 8.4%. As such, the low ROE certainly provides some context for Al Khaleej Takaful Insurance Company QPSC’s very modest 2.5% net income growth over the past five years.

Next, when comparing against industry net income growth, we found that Al Khaleej Takaful Insurance Company QPSC’s reported growth was lower than industry growth of 4.8% over the same period, which we don’t like to see.

Earnings growth is an important metric to consider when evaluating a stock. Next, investors need to determine whether expected earnings growth, or lack of it, is already embedded in the stock price. This allows them to determine if the stock’s future looks bright or ominous. If you’re wondering about Al Khaleej Takaful Insurance Company QPSC’s valuation, check out this price-to-earnings ratio benchmark against its industry.

Is Al Khaleej Takaful Insurance Company QPSC using its retained earnings effectively?

Despite a modest three-year median payout ratio of 42% (meaning the company keeps the remaining 58% of its income), earnings growth at Al Khaleej Takaful Insurance Company QPSC has been fairly modest. So there could be other factors at play here that could potentially hamper growth. For example, the business has faced some headwinds.

Additionally, Al Khaleej Takaful Insurance Company QPSC pays dividends for at least a decade, suggesting that maintaining dividend payments is much more important to management, even if it comes at the expense of company growth.

summary

Overall, we have mixed feelings about Al Khaleej Takaful Insurance Company QPSC. Though the company has high earnings retention, its low yield is likely holding back its earnings growth. In conclusion, we would proceed with caution on this company and one way to do so would be to look at the company’s risk profile. You can see the 1 risk we have identified for Al Khaleej Takaful Insurance Company QPSC by visiting our Risk Dashboard for free on our platform here.

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This Simply Wall St article is of a general nature. We provide comments based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended as financial advice. It is not a recommendation to buy or sell any stock and does not take into account your goals or financial situation. Our goal is to offer you long-term focused analysis based on fundamental data. Note that our analysis may not take into account the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any of the stocks mentioned.