Do Its Financials Have Any Role To Play In Driving MedservRegis p.l.c.'s (MTSE:MDS) Stock Up Recently?

MedservRegis' (MTSE:MDS) stock is up by a considerable 20% over the past week. We wonder if and what role the company's financials play in that price change as a company's long-term fundamentals usually dictate market outcomes. Specifically, we decided to study MedservRegis' 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. Simply put, it is used to assess the profitability of a company in relation to its equity capital.

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How To Calculate Return On Equity?

The formula for ROE is:

Return on Equity = Net Profit (from continuing operations) ÷ Shareholders' Equity

So, based on the above formula, the ROE for MedservRegis is:

9.5% = €5.4m ÷ €57m (Based on the trailing twelve months to June 2025).

The 'return' is the yearly profit. That means that for every €1 worth of shareholders' equity, the company generated €0.10 in profit.

Check out our latest analysis for MedservRegis

What Has ROE Got To Do With 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. Generally speaking, other things being equal, firms with a high return on equity and profit retention, have a higher growth rate than firms that don’t share these attributes.

MedservRegis' Earnings Growth And 9.5% ROE

On the face of it, MedservRegis' ROE is not much to talk about. A quick further study shows that the company's ROE doesn't compare favorably to the industry average of 13% either. However, we we're pleasantly surprised to see that MedservRegis grew its net income at a significant rate of 66% in the last five years. Therefore, there could be other reasons behind this 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.

Next, on comparing with the industry net income growth, we found that MedservRegis' growth is quite high when compared to the industry average growth of 48% in the same period, which is great to see.

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. If you're wondering about MedservRegis''s valuation, check out this gauge of its price-to-earnings ratio, as compared to its industry.

Is MedservRegis Making Efficient Use Of Its Profits?

MedservRegis has a significant three-year median payout ratio of 82%, meaning the company only retains 18% of its income. This implies that the company has been able to achieve high earnings growth despite returning most of its profits to shareholders.

While MedservRegis has been growing its earnings, it only recently started to pay dividends which likely means that the company decided to impress new and existing shareholders with a dividend.

Conclusion

On the whole, we do feel that MedservRegis has some positive attributes. That is, quite an impressive growth in earnings. However, the low profit retention means that the company's earnings growth could have been higher, had it been reinvesting a higher portion of its profits. Until now, we have only just grazed the surface of the company's past performance by looking at the company's fundamentals. To gain further insights into MedservRegis' past profit growth, check out this visualization of past earnings, revenue and cash flows.

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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.