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Vitec Software Group AB (publ)'s (STO:VIT B) Fundamentals Look Pretty Strong: Could The Market Be Wrong About The Stock?

Simply Wall St · 05/15 04:31

With its stock down 29% over the past three months, it is easy to disregard Vitec Software Group (STO:VIT B). However, stock prices are usually driven by a company’s financials over the long term, which in this case look pretty respectable. Specifically, we decided to study Vitec Software Group's ROE in this article.

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.

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How Is ROE Calculated?

The formula for ROE is:

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

So, based on the above formula, the ROE for Vitec Software Group is:

8.7% = kr408m ÷ kr4.7b (Based on the trailing twelve months to March 2025).

The 'return' is the yearly profit. Another way to think of that is that for every SEK1 worth of equity, the company was able to earn SEK0.09 in profit.

See our latest analysis for Vitec Software Group

Why Is ROE Important For Earnings Growth?

Thus far, we have learned that ROE measures how efficiently a company is generating its profits. Depending on how much of these profits the company reinvests or "retains", and how effectively it does so, we are then able to assess a company’s earnings growth potential. 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.

Vitec Software Group's Earnings Growth And 8.7% ROE

At first glance, Vitec Software Group's ROE doesn't look very promising. Next, when compared to the average industry ROE of 28%, the company's ROE leaves us feeling even less enthusiastic. In spite of this, Vitec Software Group was able to grow its net income considerably, at a rate of 24% in the last five years. We reckon that there could be other factors at play here. For instance, the company has a low payout ratio or is being managed efficiently.

Next, on comparing Vitec Software Group's net income growth with the industry, we found that the company's reported growth is similar to the industry average growth rate of 28% over the last few years.

past-earnings-growth
OM:VIT B Past Earnings Growth May 15th 2025

The basis for attaching value to a company is, to a great extent, tied to its earnings growth. It’s important for an investor to know whether the market has priced in the company's expected earnings growth (or decline). By doing so, they will have an idea if the stock is headed into clear blue waters or if swampy waters await. Is VIT B fairly valued? This infographic on the company's intrinsic value has everything you need to know.

Is Vitec Software Group Making Efficient Use Of Its Profits?

The three-year median payout ratio for Vitec Software Group is 31%, which is moderately low. The company is retaining the remaining 69%. By the looks of it, the dividend is well covered and Vitec Software Group is reinvesting its profits efficiently as evidenced by its exceptional growth which we discussed above.

Additionally, Vitec Software Group 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 is expected to keep paying out approximately 28% of its profits over the next three years. Still, forecasts suggest that Vitec Software Group's future ROE will rise to 11% even though the the company's payout ratio is not expected to change by much.

Summary

In total, it does look like Vitec Software Group has some positive aspects to its business. With a high rate of reinvestment, albeit at a low ROE, the company has managed to see a considerable growth in its earnings. With that said, the latest industry analyst forecasts reveal that the company's earnings growth is expected to slow down. To know more about the latest analysts predictions for the company, check out this visualization of analyst forecasts for the company.