Is Hamad Mohammed Bin Saedan Real Estate Company's (TADAWUL:9648) Recent Price Movement Underpinned By Its Weak Fundamentals?

Hamad Mohammed Bin Saedan Real Estate (TADAWUL:9648) has had a rough three months with its share price down 20%. It is possible that the markets have ignored the company's differing financials and decided to lean-in to the negative sentiment. Stock prices are usually driven by a company’s financial performance over the long term, and therefore we decided to pay more attention to the company's financial performance. In this article, we decided to focus on Hamad Mohammed Bin Saedan Real Estate'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. 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?

The formula for ROE is:

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

So, based on the above formula, the ROE for Hamad Mohammed Bin Saedan Real Estate is:

4.5% = ر.س12m ÷ ر.س261m (Based on the trailing twelve months to June 2025).

The 'return' refers to a company's earnings over the last year. One way to conceptualize this is that for each SAR1 of shareholders' capital it has, the company made SAR0.05 in profit.

See our latest analysis for Hamad Mohammed Bin Saedan Real Estate

Why Is ROE Important For Earnings Growth?

Thus far, we have learned that ROE measures how efficiently a company is generating its profits. 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.

Hamad Mohammed Bin Saedan Real Estate's Earnings Growth And 4.5% ROE

It is quite clear that Hamad Mohammed Bin Saedan Real Estate's ROE is rather low. Even when compared to the industry average of 13%, the ROE figure is pretty disappointing. However, we we're pleasantly surprised to see that Hamad Mohammed Bin Saedan Real Estate grew its net income at a significant rate of 25% in the last five years. We reckon that there could be other factors at play here. 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.

As a next step, we compared Hamad Mohammed Bin Saedan Real Estate's net income growth with the industry and found that the company has a similar growth figure when compared with the industry average growth rate of 26% in the same period.

The basis for attaching value to a company is, to a great extent, tied to its earnings growth. 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. One good indicator of expected earnings growth is the P/E ratio which determines the price the market is willing to pay for a stock based on its earnings prospects. So, you may want to check if Hamad Mohammed Bin Saedan Real Estate is trading on a high P/E or a low P/E, relative to its industry.

Is Hamad Mohammed Bin Saedan Real Estate Using Its Retained Earnings Effectively?

Hamad Mohammed Bin Saedan Real Estate's very high three-year median payout ratio of 117% suggests that the company is paying more to its shareholders than what it is earning. However, this hasn't hampered its ability to grow as we saw earlier. With that said, it could be worth keeping an eye on the high payout ratio as that's a huge risk. To know the 5 risks we have identified for Hamad Mohammed Bin Saedan Real Estate visit our risks dashboard for free.

Conclusion

In total, we're a bit ambivalent about Hamad Mohammed Bin Saedan Real Estate's performance. While no doubt its earnings growth is pretty substantial, its ROE and earnings retention is quite poor. So while the company has managed to grow its earnings in spite of this, we are unconvinced if this growth could extend, especially during troubled times. Up till now, we've only made a short study of the company's growth data. To gain further insights into Hamad Mohammed Bin Saedan Real Estate's past profit growth, check out this visualization of past earnings, revenue and cash flows.

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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.