Should Weakness in S.C. Moldova S.A.'s (BVB:MODY) Stock Be Seen As A Sign That Market Will Correct The Share Price Given Decent Financials?

S.C. Moldova (BVB:MODY) has had a rough week with its share price down 23%. However, stock prices are usually driven by a company’s financials over the long term, which in this case look pretty respectable. Specifically, we decided to study S.C. Moldova's ROE in this article.

Return on equity or ROE is a key measure used to assess how efficiently a company's management is utilizing the company's capital. In simpler terms, it measures the profitability of a company in relation to shareholder's equity.

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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 S.C. Moldova is:

5.1% = RON222k ÷ RON4.4m (Based on the trailing twelve months to June 2025).

The 'return' is the amount earned after tax over the last twelve months. So, this means that for every RON1 of its shareholder's investments, the company generates a profit of RON0.05.

Check out our latest analysis for S.C. Moldova

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 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.

S.C. Moldova's Earnings Growth And 5.1% ROE

As you can see, S.C. Moldova's ROE looks pretty weak. However, the fact that it is higher than the industry average of 4.2% makes us a bit more interested. Particularly, the modest 12% net income growth seen by S.C. Moldova over the past five years is a positive. Bear in mind, the company does have a low ROE. It is just that the industry ROE is lower. So there might well be other reasons for the earnings to grow. Such as high earnings retention or an efficient management in place.

Next, on comparing with the industry net income growth, we found that S.C. Moldova's growth is quite high when compared to the industry average growth of 8.5% in the same period, which is great to see.

The basis for attaching value to a company is, to a great extent, tied to its earnings growth. It’s important for an investor to know whether the market has priced in the company's expected earnings growth (or decline). This then helps them determine if the stock is placed for a bright or bleak future. If you're wondering about S.C. Moldova's's valuation, check out this gauge of its price-to-earnings ratio, as compared to its industry.

Is S.C. Moldova Making Efficient Use Of Its Profits?

The high three-year median payout ratio of 100% (or a retention ratio of 0.02%) for S.C. Moldova suggests that the company's growth wasn't really hampered despite it returning most of its income to its shareholders.

While S.C. Moldova has seen growth in its earnings, it only recently started to pay a dividend. It is most likely that the company decided to impress new and existing shareholders with a dividend.

Conclusion

On the whole, we do feel that S.C. Moldova has some positive attributes. Especially the growth in earnings which was backed by a moderate ROE. Still, the ROE could have been even more beneficial to investors had the company been reinvesting more of its profits. As highlighted earlier, the current reinvestment rate appears to be negligible. Until now, we have only just grazed the surface of the company's past performance by looking at the company's fundamentals. So it may be worth checking this free detailed graph of S.C. Moldova'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. 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.