DocCheck (ETR:AJ91) has performed well on the stock market, with its share price rising a whopping 35% over the past three months. Markets typically pay for a company’s long-term fundamentals, so we decided to look at a company’s key performance indicators to see if they could impact the market. . In particular, today we will focus on his ROE on DocCheck.
Return on equity or ROE is an important factor for shareholders to consider as it indicates how effectively capital is being reinvested. In other words, it is a rate of return that measures the rate of return on capital provided by the company’s shareholders.
See DocCheck’s Latest Analysis
ROE calculation method
ROE can be calculated using the following formula:
Return on Equity = Net Income (from Continuing Operations) ÷ Shareholders’ Equity
So based on the formula above, DocCheck’s ROE would be:
19% = €6.8 million ÷ €35 million (based on the last 12 months to June 2022).
“Return” refers to the company’s earnings for the last year. This means that for a shareholder’s equity worth €1, the company has generated a profit of €0.19.
What is the relationship between ROE and profit growth?
So far, we’ve learned that ROE measures how efficiently a company generates profits. Next, the company should assess how much of its earnings will be reinvested or “retained” for future growth. This will give you an idea about the company’s growth potential. All else being equal, companies with both high return on equity and high profit margins typically have higher growth rates compared to companies that do not have the same characteristics.
DocCheck Revenue Growth and 19% ROE
First, DocCheck’s ROE looks acceptable. Additionally, the company’s ROE is significantly better than the industry average of 12%. This certainly adds some context to DocCheck’s exceptional 37% net profit growth seen over the past five years. We believe there are other aspects that are also having a positive impact on the company’s revenue growth. For example, the company’s dividend payout ratio is low, or it is managed efficiently.
We then compared DocCheck’s net profit growth to the industry. We are pleased with the company’s growth rate compared to the industry, which showed 11% growth in the same period.
Earnings growth is an important metric to consider when evaluating stocks. Investors should check whether expected earnings growth or decline is expected. Doing so will help you see if the stock’s future looks promising or ominous. If you’re in doubt about DocCheck’s valuation, check out this gauge of price/earnings ratio compared to the industry.
Is DocCheck making good use of its profits?
DocCheck’s median 3-year payout rate is 44% (if you keep 56% of your income), which is neither too low nor too high. This suggests that the dividend is well covered, and given the high growth rates discussed above, DocCheck appears to be reinvesting earnings efficiently.
Additionally, DocCheck has paid dividends for at least 10 years. This means the company is serious about sharing profits with its shareholders.
Overall, I am very satisfied with DocCheck’s performance. I especially like that the company has reinvested heavily in their business and is delivering a high rate of return. Not surprisingly, this translates into impressive profit growth. If the company continues to grow earnings as it has in the past, it could have a positive impact on the stock price given how earnings per share impacts the long-term stock price. Remember that the price of a stock also depends on perceived risk. Investors should therefore always be aware of the risks involved before investing in a company. In the risk dashboard are his four risks identified in DocCheck.
Do you have feedback on this article? What interests you? contact directly with us. Or send an email to our editorial team (at) Simplywallst.com.
This article by Simply Wall St is general in nature. We provide comments based on historical data and analyst projections using only unbiased methodologies and our articles are not intended as financial advice. It is not a recommendation to buy or sell stocks and does not take into account your objectives or financial situation. We aim to deliver long-term focused analysis based on fundamental data. Please note that our analysis may not take into account the latest price-sensitive company announcements or qualitative materials. Is not …
Participate in Paid User Research Sessions
you $30 USD Amazon Gift Card An hour of your time while helping build better investment tools for individual investors like you.SIGN UP HERE