It is easy to overlook Medacta Group's (VTX:MOVE) given its unimpressive and roughly flat price performance over the past month. But since value is created over the longer term, it's worth studying the company's strong financials to see what the future could hold. Specifically, we decided to study Medacta Group's ROE in this article.
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. In other words, it is a profitability ratio which measures the rate of return on the capital provided by the company's shareholders.
How To Calculate Return On Equity?
The formula for return on equityis:
Return on Equity = Net Profit (from continuing operations) ÷ Shareholders' Equity
So, based on the above formula, the ROE for Medacta Group is:
22% = €95m ÷ €425m (Based on the trailing twelve months to June 2025).
The 'return' is the amount earned after tax over the last twelve months. That means that for every CHF1 worth of shareholders' equity, the company generated CHF0.22 in profit.
Check out our latest analysis for Medacta Group
What Has ROE Got To Do With Earnings Growth?
So far, we've learned that ROE is a measure of a company's profitability. We now need to evaluate how much profit the company reinvests or "retains" for future growth which then gives us an idea about the growth potential of the company. 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.
Medacta Group's Earnings Growth And 22% ROE
To begin with, Medacta Group has a pretty high ROE which is interesting. Even when compared to the industry average of 21% the company's ROE is pretty decent. Therefore, it looks like the high ROE is what probably supported Medacta Group's modest 18% growth over the past five years.
Next, on comparing Medacta Group's net income growth with the industry, we found that the company's reported growth is similar to the industry average growth rate of 18% over the last few years.
Earnings growth is an important metric to consider when valuing a stock. It's important for an investor to know whether the market has priced in the company's expected earnings growth (or decline). This then helps them determine if the stock is placed for a bright or bleak future. Is Medacta Group fairly valued compared to other companies? These 3 valuation measures might help you decide.
Is Medacta Group Using Its Retained Earnings Effectively?
Medacta Group has a low three-year median payout ratio of 22%, meaning that the company retains the remaining 78% of its profits. This suggests that the management is reinvesting most of the profits to grow the business.
Moreover, Medacta Group is determined to keep sharing its profits with shareholders which we infer from its long history of four years of paying a dividend. Upon studying the latest analysts' consensus data, we found that the company is expected to keep paying out approximately 19% of its profits over the next three years. Accordingly, forecasts suggest that Medacta Group's future ROE will be 20% which is again, similar to the current ROE.
Summary
In total, we are pretty happy with Medacta Group's performance. Particularly, we like that the company is reinvesting heavily into its business, and at a high rate of return. Unsurprisingly, this has led to an impressive earnings growth. That being so, a study of the latest analyst forecasts show that the company is expected to see a slowdown in its future earnings growth. To know more about the latest analysts predictions for the company, check out this visualization of analyst forecasts for the company.
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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.
