Profit ratio

Is the recent stock performance of AVTECH Sweden AB (publ) (STO:AVT B) influenced by its fundamentals in any way?

AVTECH Sweden (STO:AVT B) has had a great run in the equity market with a significant 12% rise in its shares over the past week. We wonder if and what role company finances play in this price change, as a company’s long-term fundamentals usually dictate market outcomes. In this article, we decided to focus on the ROE of AVTECH Sweden.

Return on Equity or ROE is a test of how effectively a company increases its value and manages investors’ money. In other words, it is a profitability ratio that measures the rate of return on capital contributed by the company’s shareholders.

See our latest review for AVTECH Sweden

How do you calculate return on equity?

The ROE formula is:

Return on equity = Net income (from continuing operations) ÷ Equity

So, based on the above formula, the ROE for AVTECH Sweden is:

5.0% = 1.3 million kr ÷ 26 million kr (based on the last twelve months to March 2022).

The “return” is the annual profit. This therefore means that for every investment of 1 SEK by its shareholder, the company generates a profit of 0.05 SEK.

What does ROE have to do with earnings growth?

So far, we have learned that ROE measures how efficiently a company generates its profits. Depending on how much of its profits the company chooses to reinvest or “keep”, we are then able to assess a company’s future ability to generate profits. Assuming all else is equal, companies that have both a higher return on equity and better earnings retention are generally the ones with a higher growth rate compared to companies that don’t. same characteristics.

AVTECH Sweden profit growth and ROE of 5.0%

At first glance, there is not much to say about AVTECH Sweden’s ROE. We then compared the company’s ROE to the entire industry and were disappointed to see that the ROE is below the industry average of 6.5%. Despite this, AVTECH Sweden has been able to significantly increase its net income, at a rate of 36% over the past five years. Thus, there could be other aspects that positively influence the profit growth of the company. For example, the business has a low payout ratio or is efficiently managed.

Then, comparing with the industry net income growth, we found that AVTECH Sweden’s growth is quite high compared to the average industry growth of 4.5% over the same period, which is great to see.

OM:AVT B Past Earnings Growth May 28, 2022

Earnings growth is an important metric to consider when evaluating a stock. It is important for an investor to know whether the market has priced in the expected growth (or decline) in the company’s earnings. This will help them determine if the future of the title looks bright or ominous. Is AVTECH Sweden correctly valued compared to other companies? These 3 assessment metrics might help you decide.

Does AVTECH Sweden effectively reinvest its profits?

AVTECH Sweden does not pay any dividends to its shareholders, which means that the company has reinvested all of its profits back into the business. This is probably what explains the strong earnings growth discussed above.

Conclusion

Overall, we think AVTECH Sweden certainly has positive factors to consider. With a high reinvestment rate, albeit at a low ROE, the company managed to see considerable growth in earnings. Looking at current analyst estimates, we found that analysts expect the company to continue its recent growth streak. To learn more about the latest analyst forecasts for the company, check out this analyst forecast visualization for the company.

This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts only using unbiased methodology and our articles are not intended to be financial advice. It is not a recommendation to buy or sell stocks and does not take into account your objectives or financial situation. Our goal is to bring you targeted long-term analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price-sensitive companies or qualitative materials. Simply Wall St has no position in the stocks mentioned.