The oOh!Media Ltd (ASX: OML) share price has fallen 2.5% this morning and is now down nearly 7% over the last five days, but I’m still not looking to buy.
About oOh! Media
oOh! Media is an advertising company operating in Australia and New Zealand focused on what they call “Unmissable Out of Home advertising”. In other words, billboards. Across Australia and New Zealand, Ooh! Media has more than 30,000 advertising locations.
Here are two reasons I wouldn’t like to own shares in Ooh! Media.
1. Return on Equity (ROE)
oOh! Media has a low return on equity (ROE). In 2018, it was only around 4.6%. In other words, the company makes a 4.6% return on every shareholder dollar.
For comparison, the Media industry average ROE according to Simply Wall Street is around 8.4%.
oOh! Media’s low ROE is also a concern because it has declined over the last few years. This suggests oOh! Media is currently struggling to invest its capital in a project that will earn reasonable returns. Investors usually expect a higher return from shares than other instruments like bonds or term deposits because of the higher risk. Typically, I look for companies with at least a double-digit ROE.
2. Rise of Digital Media
The rise of digital media and advertising is a threat to the likes of oOh! Media. While outdoor, large-scale advertising can be eye-catching and engaging, digital advertising can be even more engaging and far more focussed.
It’s worth noting that most people on public transport, or passengers in cars, are no longer looking out the window at billboards. They are looking at phones.
While oOh! Media offers a somewhat unique product, it looks at risk of becoming obsolete.
As a long-term investor, I’m looking for a company that has a lasting competitive advantage that will still be relevant in five, ten, or twenty years’ time. I’m not convinced that oOh! Media has that trait. To read more on megatrends, have a look at this Rask Media article.
Three High-Quality, Dividend-Paying Companies
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Disclosure: At the time of writing, Max does not own shares in any of the companies mentioned.
