Should We Be Excited About The Trends Of Returns At Aegis Logistics (NSE:AEGISCHEM)?

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. However, after briefly looking over the numbers, we don't think Aegis Logistics (NSE:AEGISCHEM) has the makings of a multi-bagger going forward, but let's have a look at why that may be.

Understanding Return On Capital Employed (ROCE)

For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. Analysts use this formula to calculate it for Aegis Logistics:

Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)

0.08 = ₹1.7b ÷ (₹29b - ₹7.6b) (Based on the trailing twelve months to June 2020).

Thus, Aegis Logistics has an ROCE of 8.0%. In absolute terms, that's a low return, but it's much better than the Oil and Gas industry average of 6.1%.

See our latest analysis for Aegis Logistics

Above you can see how the current ROCE for Aegis Logistics compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like, you can check out the forecasts from the analysts covering Aegis Logistics here for free.

What The Trend Of ROCE Can Tell Us

In terms of Aegis Logistics' historical ROCE movements, the trend isn't fantastic. Around five years ago the returns on capital were 23%, but since then they've fallen to 8.0%. And considering revenue has dropped while employing more capital, we'd be cautious. This could mean that the business is losing its competitive advantage or market share, because while more money is being put into ventures, it's actually producing a lower return - "less bang for their buck" per se.

Our Take On Aegis Logistics' ROCE

We're a bit apprehensive about Aegis Logistics because despite more capital being deployed in the business, returns on that capital and sales have both fallen. Since the stock has skyrocketed 160% over the last five years, it looks like investors have high expectations of the stock. In any case, the current underlying trends don't bode well for long term performance so unless they reverse, we'd start looking elsewhere.

Aegis Logistics does have some risks though, and we've spotted 2 warning signs for Aegis Logistics that you might be interested in.

While Aegis Logistics may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.

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