Stock Analysis

Will Weakness in Mycronic AB (publ)'s (STO:MYCR) Stock Prove Temporary Given Strong Fundamentals?

OM:MYCR
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It is hard to get excited after looking at Mycronic's (STO:MYCR) recent performance, when its stock has declined 15% over the past month. 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 Mycronic's 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. In other words, it is a profitability ratio which measures the rate of return on the capital provided by the company's shareholders.

Check out our latest analysis for Mycronic

How Is ROE Calculated?

The formula for return on equity is:

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

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

26% = kr1.7b ÷ kr6.6b (Based on the trailing twelve months to December 2024).

The 'return' refers to a company's earnings over the last year. One way to conceptualize this is that for each SEK1 of shareholders' capital it has, the company made SEK0.26 in profit.

Why Is ROE Important For Earnings Growth?

We have already established that ROE serves as an efficient profit-generating gauge for a company's future earnings. 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 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.

Mycronic's Earnings Growth And 26% ROE

First thing first, we like that Mycronic has an impressive ROE. Additionally, the company's ROE is higher compared to the industry average of 12% which is quite remarkable. Probably as a result of this, Mycronic was able to see a decent net income growth of 17% over the last five years.

Next, on comparing with the industry net income growth, we found that Mycronic's reported growth was lower than the industry growth of 22% over the last few years, which is not something we like to see.

past-earnings-growth
OM:MYCR Past Earnings Growth March 12th 2025

Earnings growth is an important metric to consider when valuing a stock. The investor should try to establish if the expected growth or decline in earnings, whichever the case may be, is priced in. By doing so, they will have an idea if the stock is headed into clear blue waters or if swampy waters await. What is MYCR worth today? The intrinsic value infographic in our free research report helps visualize whether MYCR is currently mispriced by the market.

Is Mycronic Making Efficient Use Of Its Profits?

Mycronic has a three-year median payout ratio of 44%, which implies that it retains the remaining 56% of its profits. This suggests that its dividend is well covered, and given the decent growth seen by the company, it looks like management is reinvesting its earnings efficiently.

Additionally, Mycronic has paid dividends over a period of at least ten years which means that the company is pretty serious about sharing its profits with shareholders. Upon studying the latest analysts' consensus data, we found that the company's future payout ratio is expected to drop to 35% over the next three years. However, the company's ROE is not expected to change by much despite the lower expected payout ratio.

Summary

Overall, we are quite pleased with Mycronic's performance. Specifically, we like that the company is reinvesting a huge chunk of its profits at a high rate of return. This of course has caused the company to see a good amount of growth in its earnings. 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 company's future earnings growth forecasts take a look at this free report on analyst forecasts for the company to find out more.

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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.

About OM:MYCR

Mycronic

Develops, manufactures, and sells production equipment for electronics industry in Sweden, rest of Europe, the United States, other Americas, China, South Korea, rest of Asia, and internationally.

Outstanding track record with flawless balance sheet.