Declining Stock and Decent Financials: Is The Market Wrong About Mondo TV France Société Anonyme (BIT:MTF)?

With its stock down 16% over the past three months, it is easy to disregard Mondo TV France Société Anonyme (BIT:MTF). 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. In this article, we decided to focus on Mondo TV France Société Anonyme'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. In simpler terms, it measures the profitability of a company in relation to shareholder's equity.

See our latest analysis for Mondo TV France Société Anonyme

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 Mondo TV France Société Anonyme is:

14% = €428k ÷ €3.1m (Based on the trailing twelve months to June 2020).

The 'return' refers to a company's earnings over the last year. One way to conceptualize this is that for each €1 of shareholders' capital it has, the company made €0.14 in profit.

What Is The Relationship Between ROE And Earnings Growth?

We have already established that ROE serves as an efficient profit-generating gauge for a company's future earnings. 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.

Mondo TV France Société Anonyme's Earnings Growth And 14% ROE

At first glance, Mondo TV France Société Anonyme seems to have a decent ROE. Even when compared to the industry average of 14% the company's ROE looks quite decent. However, we are curious as to how Mondo TV France Société Anonyme's decent returns still resulted in flat growth for Mondo TV France Société Anonyme in the past five years. So, there could be some other aspects that could potentially be preventing the company from growing. These include low earnings retention or poor allocation of capital.

Next, we compared Mondo TV France Société Anonyme's performance against the industry and found that the industry shrunk its earnings at 12% in the same period, which suggests that the company's earnings have been shrinking at a slower rate than its industry, This does appease the negative sentiment around the company to a certain extent.

Earnings growth is a huge factor in stock valuation. The investor should try to establish if the expected growth or decline in earnings, whichever the case may be, is priced in. By doing so, they will have an idea if the stock is headed into clear blue waters or if swampy waters await. If you're wondering about Mondo TV France Société Anonyme's's valuation, check out this gauge of its price-to-earnings ratio, as compared to its industry.

Is Mondo TV France Société Anonyme Making Efficient Use Of Its Profits?

Mondo TV France Société Anonyme doesn't pay any dividend, meaning that potentially all of its profits are being reinvested in the business. However, this doesn't explain why the company hasn't seen any growth. So there could be some other explanations in that regard. For instance, the company's business may be deteriorating.

Conclusion

In total, it does look like Mondo TV France Société Anonyme has some positive aspects to its business. However, given the high ROE and high profit retention, we would expect the company to be delivering strong earnings growth, but that isn't the case here. This suggests that there might be some external threat to the business, that's hampering its growth. So far, we've only made a quick discussion around the company's earnings growth. So it may be worth checking this free detailed graph of Mondo TV France Société Anonyme's past earnings, as well as revenue and cash flows to get a deeper insight into the company's performance.

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This article by Simply Wall St is general in nature. 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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