Examobile S.A. (WSE:EXA) Stock Has Shown Weakness Lately But Financials Look Strong: Should Prospective Shareholders Make The Leap?

By
Simply Wall St
Published
February 24, 2022
WSE:EXA
Source: Shutterstock

It is hard to get excited after looking at Examobile's (WSE:EXA) recent performance, when its stock has declined 14% over the past month. However, a closer look at its sound financials might cause you to think again. Given that fundamentals usually drive long-term market outcomes, the company is worth looking at. Particularly, we will be paying attention to Examobile'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. In other words, it is a profitability ratio which measures the rate of return on the capital provided by the company's shareholders.

See our latest analysis for Examobile

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 Examobile is:

31% = zł1.3m ÷ zł4.1m (Based on the trailing twelve months to December 2021).

The 'return' is the income the business earned over the last year. So, this means that for every PLN1 of its shareholder's investments, the company generates a profit of PLN0.31.

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. 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.

A Side By Side comparison of Examobile's Earnings Growth And 31% ROE

First thing first, we like that Examobile has an impressive ROE. Second, a comparison with the average ROE reported by the industry of 25% also doesn't go unnoticed by us. Under the circumstances, Examobile's considerable five year net income growth of 47% was to be expected.

We then performed a comparison between Examobile's net income growth with the industry, which revealed that the company's growth is similar to the average industry growth of 43% in the same period.

past-earnings-growth
WSE:EXA Past Earnings Growth February 24th 2022

Earnings growth is an important metric to consider when valuing a stock. The investor should try to establish if the expected growth or decline in earnings, whichever the case may be, is priced in. Doing so will help them establish if the stock's future looks promising or ominous. Is Examobile fairly valued compared to other companies? These 3 valuation measures might help you decide.

Is Examobile Making Efficient Use Of Its Profits?

Examobile doesn't pay any dividend currently which essentially means that it has been reinvesting all of its profits into the business. This definitely contributes to the high earnings growth number that we discussed above.

Summary

Overall, we are quite pleased with Examobile's performance. In particular, it's great to see that the company is investing heavily into its business and along with a high rate of return, that has resulted in a sizeable growth in its earnings. If the company continues to grow its earnings the way it has, that could have a positive impact on its share price given how earnings per share influence long-term share prices. Not to forget, share price outcomes are also dependent on the potential risks a company may face. So it is important for investors to be aware of the risks involved in the business. To know the 3 risks we have identified for Examobile visit our risks dashboard for free.

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