Will Weakness in A/S Latvijas Juras medicinas centrs' (MUN:UOM) Stock Prove Temporary Given Strong Fundamentals?

A/S Latvijas Juras medicinas centrs (MUN:UOM) has had a rough month with its share price down 13%. However, stock prices are usually driven by a company’s financial performance over the long term, which in this case looks quite promising. Particularly, we will be paying attention to A/S Latvijas Juras medicinas centrs' 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. Put another way, it reveals the company's success at turning shareholder investments into profits.

See our latest analysis for A/S Latvijas Juras medicinas centrs

How Do You Calculate Return On Equity?

ROE 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 A/S Latvijas Juras medicinas centrs is:

8.2% = €443k ÷ €5.4m (Based on the trailing twelve months to September 2020).

The 'return' is the profit over the last twelve months. That means that for every €1 worth of shareholders' equity, the company generated €0.08 in profit.

What Is The Relationship Between ROE And Earnings Growth?

So far, we've learned that ROE is a measure of a company's profitability. 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.

A/S Latvijas Juras medicinas centrs' Earnings Growth And 8.2% ROE

To begin with, A/S Latvijas Juras medicinas centrs seems to have a respectable ROE. Further, the company's ROE is similar to the industry average of 9.4%. This probably goes some way in explaining A/S Latvijas Juras medicinas centrs' moderate 17% growth over the past five years amongst other factors.

We then compared A/S Latvijas Juras medicinas centrs' net income growth with the industry and we're pleased to see that the company's growth figure is higher when compared with the industry which has a growth rate of 5.8% in the same period.

Earnings growth is a huge factor in stock valuation. What investors need to determine next is if the expected earnings growth, or the lack of it, is already built into the share price. Doing so will help them establish if the stock's future looks promising or ominous. One 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 prospects. So, you may want to check if A/S Latvijas Juras medicinas centrs is trading on a high P/E or a low P/E, relative to its industry.

Is A/S Latvijas Juras medicinas centrs Using Its Retained Earnings Effectively?

A/S Latvijas Juras medicinas centrs has a significant three-year median payout ratio of 65%, meaning that it is left with only 35% to reinvest into its business. This implies that the company has been able to achieve decent earnings growth despite returning most of its profits to shareholders.

Moreover, A/S Latvijas Juras medicinas centrs is determined to keep sharing its profits with shareholders which we infer from its long history of four years of paying a dividend.

Conclusion

Overall, we are quite pleased with A/S Latvijas Juras medicinas centrs' performance. Especially the high ROE, Which has contributed to the impressive growth seen in earnings. Despite the company reinvesting only a small portion of its profits, it still has managed to grow its earnings so that is appreciable. Up till now, we've only made a short study of the company's growth data. You can do your own research on A/S Latvijas Juras medicinas centrs and see how it has performed in the past by looking at this FREE detailed graph of past earnings, revenue and cash flows.

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