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MedPlus Health Services’ Stock Shows Weakness But Financial Prospects Look Reasonable

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With its stock down 6.7% over the past month, it is easy to disregard MedPlus Health Services (NSE:MEDPLUS). However, the company’s fundamentals look pretty decent, and long-term financials are usually aligned with future market price movements. In this article, we decided to focus on MedPlus Health Services’ ROE.

Return on Equity or ROE is a test of how effectively a company is growing its value and managing investors’ money. Simply put, it is used to assess the profitability of a company in relation to its equity capital.

Check out our latest analysis for MedPlus Health Services

How To 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 MedPlus Health Services is:

2.7% = ₹385m ÷ ₹14b (Based on the trailing twelve months to September 2022).

The ‘return’ is the yearly profit. So, this means that for every ₹1 of its shareholder’s investments, the company generates a profit of ₹0.03.

What Has ROE Got To Do With 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. 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.

MedPlus Health Services’ Earnings Growth And 2.7% ROE

It is hard to argue that MedPlus Health Services’ ROE is much good in and of itself. Even when compared to the industry average of 9.6%, the ROE figure is pretty disappointing. However, we we’re pleasantly surprised to see that MedPlus Health Services grew its net income at a significant rate of 32% 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.

As a next step, we compared MedPlus Health Services’ net income growth with the industry, and pleasingly, we found that the growth seen by the company is higher than the average industry growth of 26%.

past-earnings-growth
NSEI:MEDPLUS Past Earnings Growth December 30th 2022

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 MedPlus Health Services is trading on a high P/E or a low P/E, relative to its industry.

Is MedPlus Health Services Efficiently Re-investing Its Profits?

MedPlus Health Services doesn’t pay any dividend currently which essentially means that it has been reinvesting all of its profits into the business. This definitely contributes to the high earnings growth number that we discussed above.

Conclusion

On the whole, we do feel that MedPlus Health Services has some positive attributes. With a high rate of reinvestment, albeit at a low ROE, the company has managed to see a considerable growth in its earnings. Having said that, looking at the current analyst estimates, we found that the company’s earnings are expected to gain momentum. 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.

Valuation is complex, but we’re helping make it simple.

Find out whether MedPlus Health Services is potentially over or undervalued by checking out our comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, insider transactions and financial health.

View the Free Analysis

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.

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