What Can The Trends At Mallouppas & Papacostas (CSE:MPT) Tell Us About Their Returns?

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing 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. So when we looked at Mallouppas & Papacostas (CSE:MPT) and its trend of ROCE, we really liked what we saw.

What is 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. Analysts use this formula to calculate it for Mallouppas & Papacostas:

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

0.043 = €1.6m ÷ (€51m - €14m) (Based on the trailing twelve months to June 2020).

So, Mallouppas & Papacostas has an ROCE of 4.3%. In absolute terms, that's a low return and it also under-performs the Specialty Retail industry average of 9.2%.

See our latest analysis for Mallouppas & Papacostas

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

The Trend Of ROCE

While the ROCE isn't as high as some other companies out there, it's great to see it's on the up. Looking at the data, we can see that even though capital employed in the business has remained relatively flat, the ROCE generated has risen by 38% over the last five years. So it's likely that the business is now reaping the full benefits of its past investments, since the capital employed hasn't changed considerably. It's worth looking deeper into this though because while it's great that the business is more efficient, it might also mean that going forward the areas to invest internally for the organic growth are lacking.

The Bottom Line On Mallouppas & Papacostas' ROCE

To sum it up, Mallouppas & Papacostas is collecting higher returns from the same amount of capital, and that's impressive. Considering the stock has delivered 19% to its stockholders over the last three years, it may be fair to think that investors aren't fully aware of the promising trends yet. So exploring more about this stock could uncover a good opportunity, if the valuation and other metrics stack up.

If you want to know some of the risks facing Mallouppas & Papacostas we've found 3 warning signs (1 doesn't sit too well with us!) that you should be aware of before investing here.

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.

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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.
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