Momo Inc.'s (NASDAQ:MOMO) Stock's On An Uptrend: Are Strong Financials Guiding The Market?

Momo’s ROE today.” data-reactid=”28″>Momo (NASDAQ:MOMO) has had a great run on the share market with its stock up by a significant 17% over the last month. Since the market usually pay for a company’s long-term fundamentals, we decided to study the company’s key performance indicators to see if they could be influencing the market. Particularly, we will be paying attention to Momo’s ROE today.

ROE or return on equity is a useful tool to assess how effectively a company can generate returns on the investment it received from its shareholders. In other words, it is a profitability ratio which measures the rate of return on the capital provided by the company’s shareholders.

Check out our latest analysis for Momo ” data-reactid=”30″> Check out our latest analysis for Momo

How To Calculate Return On Equity?

Return on Equity = Net Profit (from continuing operations) ÷ Shareholders’ Equity

So, based on the above formula, the ROE for Momo is:

24% = CN¥3.2b ÷ CN¥13b (Based on the trailing twelve months to March 2020).

The ‘return’ is the income the business earned over the last year. Another way to think of that is that for every $1 worth of equity, the company was able to earn $0.24 in profit.

What Is The Relationship Between ROE And Earnings Growth?

So far, we’ve learned that ROE is a measure of a company’s profitability. 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 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.

Momo’s Earnings Growth And 24% ROE

First thing first, we like that Momo has an impressive ROE. Additionally, the company’s ROE is higher compared to the industry average of 11% which is quite remarkable. So, the substantial 46% net income growth seen by Momo over the past five years isn’t overly surprising.

We then compared Momo’s net income growth with the industry and we’re pleased to see that the company’s growth figure is higher when compared with the industry which has a growth rate of 30% in the same period.

More

infographic on the company’s intrinsic value has everything you need to know.” data-reactid=”58″>The basis for attaching value to a company is, to a great extent, tied to its earnings growth. What investors need to determine next is if the expected earnings growth, or the lack of it, is already built into the share price. This then helps them determine if the stock is placed for a bright or bleak future. Is MOMO fairly valued? This infographic on the company’s intrinsic value has everything you need to know.

Is Momo Using Its Retained Earnings Effectively?

Momo doesn’t pay any dividend to its shareholders, meaning that the company has been reinvesting all of its profits into the business. This is likely what’s driving the high earnings growth number discussed above.

Summary

visualization of analyst forecasts for the company.” data-reactid=”62″>In total, we are pretty happy with Momo’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. With that said, the latest industry analyst forecasts reveal that the company’s earnings growth is expected to slow down. To know more about the latest analysts predictions for the company, check out this visualization of analyst forecasts for the company.