Monbat AD (BUL:MONB) Will Will Want To Turn Around Its Return Trends

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount 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. Having said that, from a first glance at Monbat AD (BUL:MONB) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper look.

What is 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. To calculate this metric for Monbat AD, this is the formula:

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

0.053 = лв17m ÷ (лв463m - лв153m) (Based on the trailing twelve months to December 2020).

Therefore, Monbat AD has an ROCE of 5.3%. In absolute terms, that's a low return and it also under-performs the Electrical industry average of 10%.

Check out our latest analysis for Monbat AD

Historical performance is a great place to start when researching a stock so above you can see the gauge for Monbat AD's ROCE against it's prior returns. If you want to delve into the historical earnings, revenue and cash flow of Monbat AD, check out these free graphs here.

What The Trend Of ROCE Can Tell Us

When we looked at the ROCE trend at Monbat AD, we didn't gain much confidence. To be more specific, ROCE has fallen from 13% over the last five years. However it looks like Monbat AD 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 may take some time before the company starts to see any change in earnings from these investments.

The Key Takeaway

In summary, Monbat AD 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 31% 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 Monbat AD has the makings of a multi-bagger.

If you want to know some of the risks facing Monbat AD we've found 3 warning signs (2 are a bit concerning!) that you should be aware of before investing here.

While Monbat AD isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

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