Arabian Plastic Industrial Company Limited's (TADAWUL:9548) Stock On An Uptrend: Could Fundamentals Be Driving The Momentum?

Arabian Plastic Industrial's (TADAWUL:9548) stock is up by a considerable 48% over the past three months. As most would know, fundamentals are what usually guide market price movements over the long-term, 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 Arabian Plastic Industrial's ROE today.

Return on equity or ROE is an important factor to be considered by a shareholder because it tells them how effectively their capital is being reinvested. In simpler terms, it measures the profitability of a company in relation to shareholder's equity.

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How Do You Calculate Return On Equity?

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 Arabian Plastic Industrial is:

16% = ر.س19m ÷ ر.س120m (Based on the trailing twelve months to June 2025).

The 'return' is the profit over the last twelve months. So, this means that for every SAR1 of its shareholder's investments, the company generates a profit of SAR0.16.

Check out our latest analysis for Arabian Plastic Industrial

Why Is ROE Important For Earnings Growth?

We have already established that ROE serves as an efficient profit-generating gauge for a company's future earnings. 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 all else is equal, companies that have both a higher return on equity and higher profit retention are usually the ones that have a higher growth rate when compared to companies that don't have the same features.

Arabian Plastic Industrial's Earnings Growth And 16% ROE

It is quite clear that Arabian Plastic Industrial's ROE is rather low. Further, we noted that the company's ROE is similar to the industry average of 16%. Moreover, we are quite pleased to see that Arabian Plastic Industrial's net income grew significantly at a rate of 21% over the last five years. Considering the low ROE, it is quite possible that there might also be some other aspects that are positively influencing the company's earnings growth. Such as - high earnings retention or an efficient management in place.

We then performed a comparison between Arabian Plastic Industrial's net income growth with the industry, which revealed that the company's growth is similar to the average industry growth of 21% in the same 5-year period.

Earnings growth is a huge factor in stock valuation. 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 Arabian Plastic Industrial's's valuation, check out this gauge of its price-to-earnings ratio, as compared to its industry.

Is Arabian Plastic Industrial Efficiently Re-investing Its Profits?

Arabian Plastic Industrial's three-year median payout ratio is a pretty moderate 32%, meaning the company retains 68% of its income. So it seems that Arabian Plastic Industrial is reinvesting efficiently in a way that it sees impressive growth in its earnings (discussed above) and pays a dividend that's well covered.

Summary

On the whole, we do feel that Arabian Plastic Industrial has some positive attributes. 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 would have the 4 risks we have identified for Arabian Plastic Industrial.

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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.