Stock Analysis

Is Weakness In Tremor International Ltd (LON:TRMR) Stock A Sign That The Market Could be Wrong Given Its Strong Financial Prospects?

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AIM:TRMR
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It is hard to get excited after looking at Tremor International's (LON:TRMR) recent performance, when its stock has declined 9.0% over the past three months. But if you pay close attention, you might gather that its strong financials could mean that the stock could potentially see an increase in value in the long-term, given how markets usually reward companies with good financial health. In this article, we decided to focus on Tremor International's ROE.

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 Tremor International

How Do You 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 Tremor International is:

13% = US$70m ÷ US$531m (Based on the trailing twelve months to September 2021).

The 'return' is the yearly profit. Another way to think of that is that for every £1 worth of equity, the company was able to earn £0.13 in profit.

What Is The Relationship Between ROE And 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 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 Tremor International's Earnings Growth And 13% ROE

To begin with, Tremor International seems to have a respectable ROE. Further, the company's ROE compares quite favorably to the industry average of 9.4%. This probably laid the ground for Tremor International's moderate 14% net income growth seen over the past five years.

Next, on comparing with the industry net income growth, we found that Tremor International's growth is quite high when compared to the industry average growth of 10% in the same period, which is great to see.

past-earnings-growth
AIM:TRMR Past Earnings Growth November 14th 2021

Earnings growth is a huge factor in stock valuation. 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 TRMR fairly valued? This infographic on the company's intrinsic value has everything you need to know.

Is Tremor International Efficiently Re-investing Its Profits?

While the company did pay out a portion of its dividend in the past, it currently doesn't pay a dividend. We infer that the company has been reinvesting all of its profits to grow its business.

Conclusion

On the whole, we feel that Tremor International's performance has been quite good. Specifically, we like that the company is reinvesting a huge chunk of its profits at a high rate of return. This of course has caused the company to see substantial growth in its earnings. That being so, a study of the latest analyst forecasts show that the company is expected to see a slowdown in its future earnings growth. To know more about the latest analysts predictions for the company, check out this visualization of analyst forecasts for the company.

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About AIM:TRMR

Tremor International

Tremor International Ltd. provides end-to-end software platform that enables advertisers to reach relevant audiences and publishers.

The Snowflake is a visual investment summary with the score of each axis being calculated by 6 checks in 5 areas.

Analysis AreaScore (0-6)
Valuation5
Future Growth5
Past Performance2
Financial Health6
Dividends0

Read more about these checks in the individual report sections or in our analysis model.

Flawless balance sheet and undervalued.