Emaar Development PJSC (DFM: EMAARDEV) share on an uptrend: could fundamentals be driving the momentum?

The share of Emaar Development PJSC (DFM: EMAARDEV) has increased by 35% over the past three months. As most know, fundamentals generally guide long-term market price movements, so we decided to look at the company’s key financial metrics today to see if they have a role to play in the recent one. price movement. In this article, we have decided to focus on the ROE of Emaar Development PJSC.

ROE or return on equity is a useful tool to assess how effectively a company can generate the returns on investment it has received from its shareholders. Simply put, it is used to assess a company’s profitability against its equity.

See our latest review for Emaar Development PJSC

How to calculate return on equity?

ROE can be calculated using the formula:

Return on equity = Net income (from continuing operations) ÷ Equity

So, based on the above formula, the ROE for Emaar Development PJSC is:

17% = د.إ 2.4 b ÷ د.إ 14 b (Based on the last twelve months up to March 2021).

The “return” is the annual profit. This therefore means that for each AED1 of the investments of its shareholder, the company generates a profit of AED0.17.

What does ROE have to do with profit growth?

We have already established that ROE is an effective indicator of profit generation for a company’s future profits. Based on the portion of its profits that the company chooses to reinvest or “keep”, we are then able to assess a company’s future ability to generate profits. Assuming everything else is equal, companies that have both a higher return on equity and higher profit retention are generally those that have a higher growth rate than companies that do not have the same characteristics.

Growth in profits of Emaar Development PJSC and 17% of ROE

At first glance, the ROE of Emaar Development PJSC is not much to say. While further study shows the company’s ROE to be 5.6% above the industry average, something we certainly can’t ignore. But given the decline in Emaar Development PJSC’s five-year net income of 7.5% over the past five years, we might rethink that. Keep in mind that the business has a slightly low ROE. It’s just that the industry’s ROE is lower. Therefore, this partly explains the drop in income.

From the 7.5% decline reported by the industry over the same period, we infer that Emaar Development PJSC and its industry are both contracting at a similar rate.

DFM: EMAARDEV Past profit growth June 6, 2021

The basis for attaching value to a business is, to a large extent, related to the growth of its profits. What investors next need to determine is whether the expected earnings growth, or lack thereof, is already built into the share price. By doing this, they will have an idea if the stock is heading for clear blue waters or if swampy waters are ahead of them. A 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 outlook. So, you might want to check if Emaar Development PJSC is trading high P / E or low P / E, relative to its industry.

Is Emaar Development PJSC Efficiently Reinvesting Its Profits?

Although the company has paid part of its dividend in the past, it currently does not pay any dividends. This implies that potentially all of its profits are reinvested in the business.

Conclusion

All in all, it seems that Emaar Development PJSC has positive aspects for its activity. However, we are disappointed to see a lack of earnings growth despite moderate ROE and a high reinvestment rate. We believe there could be external factors that could negatively impact the business. That said, we looked at current analysts’ estimates and found that analysts expect the company’s earnings growth to improve slightly. After all, the company’s existing shareholders might have some breathing space. To learn more about the latest analyst forecast for the business, check out this visualization of the analyst forecast for the business.

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About Geraldine Higgins

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