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Does The Market Have A Low Tolerance For Moksh Ornaments Limited’s (NSE:MOKSH) Mixed Fundamentals?


Moksh Ornaments (NSE:MOKSH) has had a rough three months with its share price down 28%. It is possible that the markets have ignored the company’s differing financials and decided to lean-in to the negative sentiment. Stock prices are usually driven by a company’s financial performance over the long term, and therefore we decided to pay more attention to the company’s financial performance. In this article, we decided to focus on Moksh Ornaments’ 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.

Check out the opportunities and risks within the IN Luxury industry.

How Do You Calculate Return On Equity?

The formula for ROE is:

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

So, based on the above formula, the ROE for Moksh Ornaments is:

12% = ₹54m ÷ ₹449m (Based on the trailing twelve months to June 2022).

The ‘return’ is the income the business earned over the last year. That means that for every ₹1 worth of shareholders’ equity, the company generated ₹0.12 in profit.

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 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.

Moksh Ornaments’ Earnings Growth And 12% ROE

On the face of it, Moksh Ornaments’ ROE is not much to talk about. However, its ROE is similar to the industry average of 12%, so we won’t completely dismiss the company. On the other hand, Moksh Ornaments reported a fairly low 3.0% net income growth over the past five years. Bear in mind, the company’s ROE is not very high . Hence, this does provide some context to low earnings growth seen by the company.

Next, on comparing with the industry net income growth, we found that Moksh Ornaments’ reported growth was lower than the industry growth of 19% in the same period, which is not something we like to see.

NSEI:MOKSH Past Earnings Growth November 23rd 2022

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. If you’re wondering about Moksh Ornaments”s valuation, check out this gauge of its price-to-earnings ratio, as compared to its industry.

Is Moksh Ornaments Efficiently Re-investing Its Profits?

While the company did pay out a portion of its dividend in the past, it currently doesn’t pay a dividend. We infer that the company has been reinvesting all of its profits to grow its business.

Summary

In total, we’re a bit ambivalent about Moksh Ornaments’ 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. Our risks dashboard will have the 1 risk we have identified for Moksh Ornaments.

Valuation is complex, but we’re helping make it simple.

Find out whether Moksh Ornaments is potentially over or undervalued by checking out our comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, insider transactions and financial health.

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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.



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