Medicare Group Q.P.S.C.'s (DSM:MCGS) Has Been On A Rise But Financial Prospects Look Weak: Is The Stock Overpriced?

Medicare Group Q.P.S.C's (DSM:MCGS) stock is up by a considerable 14% over the past month. However, we decided to pay close attention to its weak financials as we are doubtful that the current momentum will keep up, given the scenario. Particularly, we will be paying attention to Medicare Group Q.P.S.C's ROE today.

ROE or return on equity is a useful tool to assess how effectively a company can generate returns on the investment it received from its shareholders. Simply put, it is used to assess the profitability of a company in relation to its equity capital.

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How Is ROE Calculated?

Return on equity 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 Medicare Group Q.P.S.C is:

9.3% = ر.ق94m ÷ ر.ق1.0b (Based on the trailing twelve months to December 2024).

The 'return' is the amount earned after tax over the last twelve months. Another way to think of that is that for every QAR1 worth of equity, the company was able to earn QAR0.09 in profit.

See our latest analysis for Medicare Group Q.P.S.C

What Is The Relationship Between ROE And Earnings Growth?

Thus far, we have learned that ROE measures how efficiently a company is generating its profits. 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 Side By Side comparison of Medicare Group Q.P.S.C's Earnings Growth And 9.3% ROE

It is quite clear that Medicare Group Q.P.S.C's ROE is rather low. Further, we noted that the company's ROE is similar to the industry average of 9.4%. Thus, the low ROE provides some context to Medicare Group Q.P.S.C's flat net income growth over the past five years.

As a next step, we compared Medicare Group Q.P.S.C's net income growth with the industry and discovered that the industry saw an average growth of 11% 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. By doing so, they will have an idea if the stock is headed into clear blue waters or if swampy waters await. If you're wondering about Medicare Group Q.P.S.C's's valuation, check out this gauge of its price-to-earnings ratio, as compared to its industry.

Is Medicare Group Q.P.S.C Efficiently Re-investing Its Profits?

The high three-year median payout ratio of 89% (meaning, the company retains only 11% of profits) for Medicare Group Q.P.S.C suggests that the company's earnings growth was miniscule as a result of paying out a majority of its earnings.

Additionally, Medicare Group Q.P.S.C has paid dividends over a period of at least ten years, which means that the company's management is determined to pay dividends even if it means little to no earnings growth. Based on the latest analysts' estimates, we found that the company's future payout ratio over the next three years is expected to hold steady at 93%. Regardless, the future ROE for Medicare Group Q.P.S.C is predicted to rise to 11% despite there being not much change expected in its payout ratio.

Conclusion

On the whole, Medicare Group Q.P.S.C's performance is quite a big let-down. As a result of its low ROE and lack of much reinvestment into the business, the company has seen a disappointing earnings growth rate. Until now, we have only just grazed the surface of the company's past performance by looking at the company's fundamentals. You can do your own research on Medicare Group Q.P.S.C 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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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.