M.O.B.A. Network AB (publ)'s (STO:MOBA) Stock Has Shown Weakness Lately But Financial Prospects Look Decent: Is The Market Wrong?

Simply Wall St · 09/15/2023 04:40

It is hard to get excited after looking at M.O.B.A. Network's (STO:MOBA) recent performance, when its stock has declined 16% over the past month. But if you pay close attention, you might find that its key financial indicators look quite decent, which could mean that the stock could potentially rise in the long-term given how markets usually reward more resilient long-term fundamentals. Specifically, we decided to study M.O.B.A. Network's ROE in this article.

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. Simply put, it is used to assess the profitability of a company in relation to its equity capital.

Check out our latest analysis for M.O.B.A. Network

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 M.O.B.A. Network is:

1.6% = kr5.1m ÷ kr315m (Based on the trailing twelve months to June 2023).

The 'return' is the profit over the last twelve months. One way to conceptualize this is that for each SEK1 of shareholders' capital it has, the company made SEK0.02 in profit.

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. Assuming all else is equal, companies that have both a higher return on equity and higher profit retention are usually the ones that have a higher growth rate when compared to companies that don't have the same features.

A Side By Side comparison of M.O.B.A. Network's Earnings Growth And 1.6% ROE

It is hard to argue that M.O.B.A. Network's ROE is much good in and of itself. Even compared to the average industry ROE of 8.4%, the company's ROE is quite dismal. However, we we're pleasantly surprised to see that M.O.B.A. Network grew its net income at a significant rate of 32% 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.

As a next step, we compared M.O.B.A. Network's net income growth with the industry and found that the company has a similar growth figure when compared with the industry average growth rate of 34% in the same period.

OM:MOBA Past Earnings Growth September 15th 2023

Earnings growth is an important metric to consider when valuing a stock. It’s important for an investor to know whether the market has priced in the company's expected earnings growth (or decline). 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 M.O.B.A. Network is trading on a high P/E or a low P/E, relative to its industry.

Is M.O.B.A. Network Making Efficient Use Of Its Profits?

M.O.B.A. Network doesn't pay any dividend to its shareholders, meaning that the company has been reinvesting all of its profits into the business. This is likely what's driving the high earnings growth number discussed above.


On the whole, we do feel that M.O.B.A. Network has some positive attributes. Even in spite of the low rate of return, the company has posted impressive earnings growth as a result of reinvesting heavily into its business. That being so, the latest analyst forecasts show that the company will continue to see an expansion in its earnings. Are these analysts expectations based on the broad expectations for the industry, or on the company's fundamentals? Click here to be taken to our analyst's forecasts page for the company.