If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. Typically, we’ll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. In light of that, when we looked at Compagnie Du Mont-Blanc (EPA:MLCMB) and its ROCE trend, we weren’t exactly thrilled.
Understanding Return On Capital Employed (ROCE)
For those who don’t know, ROCE is a measure of a company’s yearly pre-tax profit (its return), relative to the capital employed in the business. To calculate this metric for Compagnie Du Mont-Blanc, this is the formula:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets – Current Liabilities)
0.074 = €20m ÷ (€321m – €58m) (Based on the trailing twelve months to May 2019).
So, Compagnie Du Mont-Blanc has an ROCE of 7.4%. In absolute terms, that’s a low return, but it’s much better than the Hospitality industry average of 6.0%.
Historical performance is a great place to start when researching a stock so above you can see the gauge for Compagnie Du Mont-Blanc’s ROCE against it’s prior returns. If you want to delve into the historical earnings, revenue and cash flow of Compagnie Du Mont-Blanc, check out these free graphs here.
What Does the ROCE Trend For Compagnie Du Mont-Blanc Tell Us?
In terms of Compagnie Du Mont-Blanc’s historical ROCE trend, it doesn’t exactly demand attention. The company has consistently earned 7.4% for the last five years, and the capital employed within the business has risen 58% in that time. This poor ROCE doesn’t inspire confidence right now, and with the increase in capital employed, it’s evident that the business isn’t deploying the funds into high return investments.
Our Take On Compagnie Du Mont-Blanc’s ROCE
Long story short, while Compagnie Du Mont-Blanc has been reinvesting its capital, the returns that it’s generating haven’t increased. Since the stock has gained an impressive 54% over the last five years, investors must think there’s better things to come. Ultimately, if the underlying trends persist, we wouldn’t hold our breath on it being a multi-bagger going forward.
If you’d like to know more about Compagnie Du Mont-Blanc, we’ve spotted 4 warning signs, and 2 of them shouldn’t be ignored.
While Compagnie Du Mont-Blanc 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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