- India
- /
- Metals and Mining
- /
- NSEI:GALLANTT
Should We Be Excited About The Trends Of Returns At Gallantt Metal (NSE:GALLANTT)?
If you're looking for a multi-bagger, there's a few things to keep an eye out for. Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding 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. Although, when we looked at Gallantt Metal (NSE:GALLANTT), it didn't seem to tick all of these boxes.
Understanding Return On Capital Employed (ROCE)
Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. To calculate this metric for Gallantt Metal, this is the formula:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.036 = ₹261m ÷ (₹8.0b - ₹745m) (Based on the trailing twelve months to September 2020).
Thus, Gallantt Metal has an ROCE of 3.6%. In absolute terms, that's a low return and it also under-performs the Metals and Mining industry average of 9.3%.
Check out our latest analysis for Gallantt Metal
While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you're interested in investigating Gallantt Metal's past further, check out this free graph of past earnings, revenue and cash flow.
How Are Returns Trending?
When we looked at the ROCE trend at Gallantt Metal, we didn't gain much confidence. Over the last five years, returns on capital have decreased to 3.6% from 16% five years ago. And considering revenue has dropped while employing more capital, we'd be cautious. If this were to continue, you might be looking at a company that is trying to reinvest for growth but is actually losing market share since sales haven't increased.
On a side note, Gallantt Metal has done well to pay down its current liabilities to 9.3% of total assets. So we could link some of this to the decrease in ROCE. What's more, this can reduce some aspects of risk to the business because now the company's suppliers or short-term creditors are funding less of its operations. Since the business is basically funding more of its operations with it's own money, you could argue this has made the business less efficient at generating ROCE.Our Take On Gallantt Metal's ROCE
In summary, we're somewhat concerned by Gallantt Metal's diminishing returns on increasing amounts of capital. Investors must expect better things on the horizon though because the stock has risen 30% in the last five years. Regardless, we don't like the trends as they are and if they persist, we think you might find better investments elsewhere.
Gallantt Metal does come with some risks though, we found 3 warning signs in our investment analysis, and 1 of those can't be ignored...
For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high returns on equity.
When trading Gallantt Metal or any other investment, use the platform considered by many to be the Professional's Gateway to the Worlds Market, Interactive Brokers. You get the lowest-cost* trading on stocks, options, futures, forex, bonds and funds worldwide from a single integrated account. Promoted
New: Manage All Your Stock Portfolios in One Place
We've created the ultimate portfolio companion for stock investors, and it's free.
• Connect an unlimited number of Portfolios and see your total in one currency
• Be alerted to new Warning Signs or Risks via email or mobile
• Track the Fair Value of your stocks
This article by Simply Wall St is general in nature. 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.
*Interactive Brokers Rated Lowest Cost Broker by StockBrokers.com Annual Online Review 2020
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com.
About NSEI:GALLANTT
Gallantt Ispat
Engages in manufacture and sale of iron and steel products in India.
Solid track record with excellent balance sheet.