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Published on November 21st, 2022 📆 | 1896 Views ⚑

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Advance International Company for Communication and Information Technology’s (TADAWUL:9524) Stock Has Shown Weakness Lately But Financial Prospects Look Decent: Is The Market Wrong?


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Advance International Company for Communication and Information Technology (TADAWUL:9524) has had a rough three months with its share price down 36%. However, stock prices are usually driven by a company’s financials over the long term, which in this case look pretty respectable. Particularly, we will be paying attention to Advance International Company for Communication and Information Technology'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. Simply put, it is used to assess the profitability of a company in relation to its equity capital.

Our analysis indicates that 9524 is potentially undervalued!

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 Advance International Company for Communication and Information Technology is:

20% = ر.س6.4m ÷ ر.س32m (Based on the trailing twelve months to June 2022).

The 'return' is the income the business earned over the last year. One way to conceptualize this is that for each SAR1 of shareholders' capital it has, the company made SAR0.20 in profit.

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. 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.

Advance International Company for Communication and Information Technology's Earnings Growth And 20% ROE

At first glance, Advance International Company for Communication and Information Technology seems to have a decent ROE. Even so, when compared with the average industry ROE of 33%, we aren't very excited. Advance International Company for Communication and Information Technology was still able to see a decent net income growth of 10% over the past five years. So, there might be other aspects that are positively influencing earnings growth. 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. Bear in mind, the company does have a respectable level of ROE. It is just that the industry ROE is higher. So this also does lend some color to the fairly high earnings growth seen by the company.

We then compared Advance International Company for Communication and Information Technology's net income growth with the industry and found that the company's growth figure is lower than the average industry growth rate of 14% in the same period, which is a bit concerning.

SASE:9524 Past Earnings Growth November 21st 2022

Earnings growth is an important metric to consider when valuing a stock. The investor should try to establish if the expected growth or decline in earnings, whichever the case may be, is priced in. 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 Advance International Company for Communication and Information Technology's's valuation, check out this gauge of its price-to-earnings ratio, as compared to its industry.

Is Advance International Company for Communication and Information Technology Efficiently Re-investing Its Profits?

Advance International Company for Communication and Information Technology doesn't pay any dividend currently which essentially means that it has been reinvesting all of its profits into the business. This definitely contributes to the decent earnings growth number that we discussed above.

Summary

Overall, we feel that Advance International Company for Communication and Information Technology certainly does have some positive factors to consider. Particularly, its earnings have grown respectably as we saw earlier, which was likely achieved due to the company reinvesting most of its earnings at a decent rate of return, to grow 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. You can see the 3 risks we have identified for Advance International Company for Communication and Information Technology by visiting our risks dashboard for free on our platform here.

Valuation is complex, but we're helping make it simple.

Find out whether Advance International Company for Communication and Information Technology is potentially over or undervalued by checking out our comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, insider transactions and financial health.

View the Free Analysis

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.

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