Capital Allocation Trends At PIERER Mobility (VIE:PKTM) Aren't Ideal

If you're looking for a multi-bagger, there's a few things to keep an eye out for. Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's amount 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. Having said that, from a first glance at PIERER Mobility (VIE:PKTM) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper look.

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 PIERER Mobility, this is the formula:

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

0.077 = €158m ÷ (€3.0b - €914m) (Based on the trailing twelve months to December 2023).

Thus, PIERER Mobility has an ROCE of 7.7%. In absolute terms, that's a low return and it also under-performs the Auto industry average of 15%.

Check out our latest analysis for PIERER Mobility

In the above chart we have measured PIERER Mobility's prior ROCE against its prior performance, but the future is arguably more important. If you'd like to see what analysts are forecasting going forward, you should check out our free analyst report for PIERER Mobility .

What The Trend Of ROCE Can Tell Us

When we looked at the ROCE trend at PIERER Mobility, we didn't gain much confidence. Over the last five years, returns on capital have decreased to 7.7% from 14% five years ago. However it looks like PIERER Mobility might be reinvesting for long term growth because while capital employed has increased, the company's sales haven't changed much in the last 12 months. It's worth keeping an eye on the company's earnings from here on to see if these investments do end up contributing to the bottom line.

The Key Takeaway

In summary, PIERER Mobility is reinvesting funds back into the business for growth but unfortunately it looks like sales haven't increased much just yet. Since the stock has declined 19% over the last five years, investors may not be too optimistic on this trend improving either. Therefore based on the analysis done in this article, we don't think PIERER Mobility has the makings of a multi-bagger.

One more thing: We've identified 4 warning signs with PIERER Mobility (at least 2 which can't be ignored) , and understanding these would certainly be useful.

While PIERER Mobility 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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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. 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.