Emirates Integrated Telecommunications Company PJSC's (DFM:DU) Stock Has Shown A Decent Performance: Have Financials A Role To Play?

Emirates Integrated Telecommunications Company PJSC's (DFM:DU) stock up by 2.4% over the past three months. As most would know, long-term fundamentals have a strong correlation with market price movements, so we decided to look at the company's key financial indicators today to determine if they have any role to play in the recent price movement. Particularly, we will be paying attention to Emirates Integrated Telecommunications Company PJSC's ROE today.

Return on equity or ROE is a key measure used to assess how efficiently a company's management is utilizing the company's capital. In other words, it is a profitability ratio which measures the rate of return on the capital provided by the company's shareholders.

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How Is ROE Calculated?

The formula for ROE is:

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

So, based on the above formula, the ROE for Emirates Integrated Telecommunications Company PJSC is:

25% = د.إ2.5b ÷ د.إ9.9b (Based on the trailing twelve months to December 2024).

The 'return' is the income the business earned over the last year. That means that for every AED1 worth of shareholders' equity, the company generated AED0.25 in profit.

Check out our latest analysis for Emirates Integrated Telecommunications Company PJSC

Why Is ROE Important For 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.

Emirates Integrated Telecommunications Company PJSC's Earnings Growth And 25% ROE

To start with, Emirates Integrated Telecommunications Company PJSC's ROE looks acceptable. Further, the company's ROE compares quite favorably to the industry average of 9.5%. This probably laid the ground for Emirates Integrated Telecommunications Company PJSC's moderate 8.0% net income growth seen over the past five years.

As a next step, we compared Emirates Integrated Telecommunications Company PJSC's net income growth with the industry and were disappointed to see that the company's growth is lower than the industry average growth of 11% in the same period.

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. Doing so will help them establish if the stock's future looks promising or ominous. What is DU worth today? The intrinsic value infographic in our free research report helps visualize whether DU is currently mispriced by the market.

Is Emirates Integrated Telecommunications Company PJSC Making Efficient Use Of Its Profits?

While Emirates Integrated Telecommunications Company PJSC has a three-year median payout ratio of 85% (which means it retains 15% of profits), the company has still seen a fair bit of earnings growth in the past, meaning that its high payout ratio hasn't hampered its ability to grow.

Moreover, Emirates Integrated Telecommunications Company PJSC is determined to keep sharing its profits with shareholders which we infer from its long history of paying a dividend for at least ten years. Based on the latest analysts' estimates, we found that the company's future payout ratio over the next three years is expected to hold steady at 95%. Accordingly, forecasts suggest that Emirates Integrated Telecommunications Company PJSC's future ROE will be 28% which is again, similar to the current ROE.

Conclusion

In total, it does look like Emirates Integrated Telecommunications Company PJSC has some positive aspects to its business. Its earnings growth is decent, and the high ROE does contribute to that growth. However, investors could have benefitted even more from the high ROE, had the company been reinvesting more of its earnings. Having said that, the company's earnings growth is expected to slow down, as forecasted in the current analyst estimates. Are these analysts expectations based on the broad expectations for the industry, or on the company's fundamentals? Click here to be taken to our analyst's forecasts page for the company.

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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.