Does its financial services have a role to play in building up Medicover AB (publ) (STO: MCOV B) stocks recently?

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Medicover (STO: MCOV B) has seen good progress in the equity market with stock rising 43% in the past three months. Since stock prices are generally aligned with a company’s long-term financial performance, we decided to take a closer look at its financial metrics to see if they had a role to play in recent price movements. . Specifically, we decided to study Medicover’s ROE in this article.

ROE or Return on Equity is a useful tool for evaluating how effectively a company can generate returns on the investment it has received from its shareholders. In other words, it is a profitability ratio that measures the rate of return on capital contributed by shareholders to the company.

Check out our latest review for Medicover

How is the ROE calculated?

The ROE formula is:

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

So, based on the formula above, Medicover’s ROE is:

5.6% = € 27m ÷ € 484m (Based on the last twelve months until December 2020).

The “return” is the income the business has earned over the past year. This means that for every SEK 1 value of equity, the company generated SEK 0.06 in profit.

What does ROE have to do with profit growth?

We have already established that ROE serves as an effective gauge to generate profit for the future profits of a business. Based on how much of those profits the company reinvests or “withholds”, and how effectively it does so, we can then assess a company’s profit growth potential. Assuming everything else remains the same, the higher the ROE and profit retention, the higher the growth rate of a business compared to businesses that don’t necessarily have these characteristics.

5.6% Medicover profit growth and ROE

At first glance, Medicover’s ROE doesn’t look very promising. Then, compared to the industry’s average ROE of 8.3%, the company’s ROE leaves us even less enthusiastic. However, the moderate 14% net income growth seen by Medicover over the past five years is certainly a bright spot. So there may be other aspects that positively influence the profit growth of the company. For example, it is possible that the management of the company has made good strategic decisions or that the company has a low payout rate.

Then, comparing Medicover’s net income growth to that of the industry, we found that the growth reported by the company was similar to the industry average growth rate of 17% over the same period.

OM: MCOV B Past profit growth February 28, 2021

Profit growth is an important factor in the valuation of stocks. The investor should try to establish whether the expected growth or decline in earnings, whatever the case, is taken into account. This then helps them determine whether the action is set for a bright or dark future. Is MCOV B assessed correctly? This Intrinsic Business Value infographic has everything you need to know.

Is Medicover Efficiently Using Retained Earnings?

With a three-year median payout ratio of 40% (implying that the company keeps 60% of its profits), it appears Medicover is reinvesting effectively so as to see respectable profit growth and pay a good dividend. covered. .

Based on the latest analyst estimates, we found that the company’s future payout ratio over the next three years is expected to hold steady at 37%. Still, forecasts suggest Medicover’s future ROE will increase to 13%, although the company’s payout ratio is unlikely to change much.

summary

Overall, we think Medicover has some positive attributes. With a high reinvestment rate, but with a low ROE, the company has managed to see considerable growth in earnings. That said, looking at current analysts’ estimates, we have seen that the company’s earnings are expected to accelerate. To learn more about the company’s future earnings growth forecast, take a look at this free analyst forecast report for the company to learn more.

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This Simply Wall St article is general in nature. It is not a recommendation to buy or sell any stock, and does not take into account your goals or your financial situation. We aim to bring you long-term, targeted analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price sensitive companies or qualitative information. Simply Wall St has no position in any of the stocks mentioned.
*Interactive Brokers ranked Least Expensive Broker by StockBrokers.com Annual Online Review 2020

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