Oneclick Logistics India Limited's (NSE:OLIL) Financials Are Too Obscure To Link With Current Share Price Momentum: What's In Store For the Stock?

Oneclick Logistics India (NSE:OLIL) has had a great run on the share market with its stock up by a significant 18% over the last week. However, we wonder if the company's inconsistent financials would have any adverse impact on the current share price momentum. Specifically, we decided to study Oneclick Logistics India'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. In other words, it is a profitability ratio which measures the rate of return on the capital provided by the company's shareholders.

View our latest analysis for Oneclick Logistics India

How To Calculate Return On Equity?

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 Oneclick Logistics India is:

5.5% = ₹6.6m ÷ ₹119m (Based on the trailing twelve months to March 2024).

The 'return' refers to a company's earnings over the last year. Another way to think of that is that for every ₹1 worth of equity, the company was able to earn ₹0.06 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. 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. Generally speaking, other things being equal, firms with a high return on equity and profit retention, have a higher growth rate than firms that don’t share these attributes.

Oneclick Logistics India's Earnings Growth And 5.5% ROE

It is quite clear that Oneclick Logistics India's ROE is rather low. Even when compared to the industry average of 15%, the ROE figure is pretty disappointing. Therefore, the disappointing ROE therefore provides a background to Oneclick Logistics India's very little net income growth of 2.8% over the past five years.

As a next step, we compared Oneclick Logistics India's net income growth with the industry and were disappointed to see that the company's growth is lower than the industry average growth of 42% in the same period.

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. Is Oneclick Logistics India fairly valued compared to other companies? These 3 valuation measures might help you decide.

Is Oneclick Logistics India Using Its Retained Earnings Effectively?

Oneclick Logistics India doesn't pay any regular dividends, which means that it is retaining all of its earnings. However, there's only been very little earnings growth to show for it. So there might be other factors at play here which could potentially be hampering growth. For example, the business has faced some headwinds.

Conclusion

In total, we're a bit ambivalent about Oneclick Logistics India's performance. While the company does have a high rate of reinvestment, the low ROE means that all that reinvestment is not reaping any benefit to its investors, and moreover, its having a negative impact on the earnings growth. Wrapping up, we would proceed with caution with this company and one way of doing that would be to look at the risk profile of the business. You can see the 5 risks we have identified for Oneclick Logistics India by visiting our risks dashboard for free on our platform here.

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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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com