Yahoo Finance Mobimo Holding AG's (VTX:MOBN) Stock Is Rallying But Financials Look Ambiguous: Will The Momentum Continue?
Mobimo Holding (VTX:MOBN) has had a great run on the share market with its stock up by a significant 7.9% over the last month. However, we decided to pay attention to the company's fundamentals which don't appear to give a clear sign about the company's financial health. Particularly, we will be paying attention to Mobimo Holding'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. Put another way, it reveals the company's success at turning shareholder investments into profits.
View our latest analysis for Mobimo Holding
How To Calculate Return On Equity?
The formula for ROE is:
Return on Equity = Net Profit (from continuing operations) ÷ Shareholders' Equity
So, based on the above formula, the ROE for Mobimo Holding is:
6.5% = CHF119m ÷ CHF1.8b (Based on the trailing twelve months to June 2022).
The 'return' is the yearly profit. That means that for every CHF1 worth of shareholders' equity, the company generated CHF0.07 in profit.
Why Is ROE Important For Earnings Growth?
Thus far, we have learned that ROE measures how efficiently a company is generating its profits. We now need to evaluate how much profit the company reinvests or "retains" for future growth which then gives us an idea about the growth potential of the company. 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.
A Side By Side comparison of Mobimo Holding's Earnings Growth And 6.5% ROE
On the face of it, Mobimo Holding's ROE is not much to talk about. We then compared the company's ROE to the broader industry and were disappointed to see that the ROE is lower than the industry average of 8.9%. However, the moderate 7.4% net income growth seen by Mobimo Holding over the past five years is definitely a positive. 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.
We then compared Mobimo Holding's net income growth with the industry and found that the company's growth figure is lower than the average industry growth rate of 19% in the same period, which is a bit concerning.
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. If you're wondering about Mobimo Holding's's valuation, check out this gauge of its price-to-earnings ratio, as compared to its industry.
Is Mobimo Holding Using Its Retained Earnings Effectively?
The high three-year median payout ratio of 64% (or a retention ratio of 36%) for Mobimo Holding suggests that the company's growth wasn't really hampered despite it returning most of its income to its shareholders.
Moreover, Mobimo Holding is determined to keep sharing its profits with shareholders which we infer from its long history of paying a dividend for at least ten years. Looking at the current analyst consensus data, we can see that the company's future payout ratio is expected to rise to 92% over the next three years. Accordingly, the expected increase in the payout ratio explains the expected decline in the company's ROE to 4.2%, over the same period.
Conclusion
On the whole, we feel that the performance shown by Mobimo Holding can be open to many interpretations. Although the company has shown a fair bit of growth in earnings, the reinvestment rate is low. Meaning, the earnings growth number could have been significantly higher had the company been retaining more of its profits and reinvesting that at a higher rate of return. With that said, on studying the latest analyst forecasts, we found that while the company has seen growth in its past earnings, analysts expect its future earnings to shrink. 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.
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