2021-10-13 05:00:00
Route Mobile 2306 ( 105% mid term long term expected gain stop loss 27% )
Route Mobile's portfolio comprises of solutions in messaging, voice, email, SMS filtering, analytics, and monetization. It boasts of a diverse enterprise client base across a broad range of industries including social media companies, banks and financial institutions, e-commerce entities, and travel aggregators. The company is headquartered in Mumbai, India but has a presence internationally in regions such as Asia Pacific, Middle East, Africa, Europe, and North America.
Positives
Above Average Sustainable ROE: The company generates a sustainable return on equity greater than the expected cost of capital which implies that the underlying business can create and compound value over a period time due to its ability to generate above average return on capital.
Zero Debt: The company has almost nil to negligible debt to equity ratio of 0.03. Considering the fact that the business is debt free, equity shareholders shall carry lower risk of holding the stock.
Asset Light Business: The company operates a great asset light business with a high Asset turnover ratio of 6.75. A high asset turnover ratio is a great driver of ROE and can improve shareholder returns. A relatively higher asset turnover ratio also will result in lower dilution as the business grows its revenues as earnings.
Great Cash Conversion of Profits: The business has a great cash conversion ratio since it is able to convert a significant portion of operating earnings of 119.27% into operating cash flow. This implies a great working capital cycle and large cash flows for either funding growth or dividends. This shall positively impact shareholder returns.
Key Risks
Poor Capital Allocation: The company has disproportionately high amount of assets locked up in working capital, cash and cash equivalents, loans and advances, etc. to the extent of 79.75% of total assets. This reflects poorly on the capital allocation strategy of the management which negatively impacts shareholder returns.
Highly Cyclical Industry: The company operates an extremely cyclical business with unpredictable earnings and cash flows. This shall result in very high stock price volatility and returns which would negatively impact shareholder returns.
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