Will Weakness in ADNOC Logistics & Services plc's (ADX:ADNOCLS) Stock Prove Temporary Given Strong Fundamentals?

ADNOC Logistics & Services (ADX:ADNOCLS) has had a rough three months with its share price down 5.0%. But if you pay close attention, you might gather that its strong financials could mean that the stock could potentially see an increase in value in the long-term, given how markets usually reward companies with good financial health. In this article, we decided to focus on ADNOC Logistics & Services' ROE.

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.

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How To 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 ADNOC Logistics & Services is:

12% = US$811m ÷ US$6.6b (Based on the trailing twelve months to September 2025).

The 'return' is the profit over the last twelve months. That means that for every AED1 worth of shareholders' equity, the company generated AED0.12 in profit.

View our latest analysis for ADNOC Logistics & Services

What Is The Relationship Between ROE And Earnings Growth?

Thus far, we have learned that ROE measures how efficiently a company is generating its profits. Based on how much of its profits the company chooses to reinvest or "retain", we are then able to evaluate a company's future ability to generate profits. Generally speaking, other things being equal, firms with a high return on equity and profit retention, have a higher growth rate than firms that don’t share these attributes.

ADNOC Logistics & Services' Earnings Growth And 12% ROE

It is hard to argue that ADNOC Logistics & Services' ROE is much good in and of itself. However, the fact that it is higher than the industry average of 8.8% makes us a bit more interested. Even more so, after seeing ADNOC Logistics & Services' exceptional 31% net income growth over the past five years. Bear in mind, the company does have a low ROE. It is just that the industry ROE is lower. Hence, there might be some other aspects that are causing earnings to grow. For example, it is possible that the company's management has made some good strategic decisions, or that the company has a low payout ratio.

We then compared ADNOC Logistics & Services' net income growth with the industry and we're pleased to see that the company's growth figure is higher when compared with the industry which has a growth rate of 10% in the same 5-year period.

Earnings growth is a huge factor in stock valuation. The investor should try to establish if the expected growth or decline in earnings, whichever the case may be, is priced in. This then helps them determine if the stock is placed for a bright or bleak future. Is ADNOCLS fairly valued? This infographic on the company's intrinsic value has everything you need to know.

Is ADNOC Logistics & Services Using Its Retained Earnings Effectively?

ADNOC Logistics & Services has a three-year median payout ratio of 36% (where it is retaining 64% of its income) which is not too low or not too high. So it seems that ADNOC Logistics & Services is reinvesting efficiently in a way that it sees impressive growth in its earnings (discussed above) and pays a dividend that's well covered.

While ADNOC Logistics & Services has been growing its earnings, it only recently started to pay dividends which likely means that the company decided to impress new and existing shareholders with a dividend. 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 34%. Therefore, the company's future ROE is also not expected to change by much with analysts predicting an ROE of 13%.

Summary

On the whole, we feel that ADNOC Logistics & Services' performance has been quite good. Particularly, we like that the company is reinvesting heavily into its business at a moderate rate of return. Unsurprisingly, this has led to an impressive earnings growth. Having said that, the company's earnings growth is expected to slow down, as forecasted in the current analyst estimates. 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.