Is NNIT (CPH:NNIT) Likely To Turn Things Around?

What trends should we look for it we want to identify stocks that can multiply in value over the long term? Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. In light of that, when we looked at NNIT (CPH:NNIT) and its ROCE trend, we weren't exactly thrilled.

Return On Capital Employed (ROCE): What is it?

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. The formula for this calculation on NNIT is:

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

0.092 = kr.165m ÷ (kr.2.7b - kr.867m) (Based on the trailing twelve months to December 2020).

Thus, NNIT has an ROCE of 9.2%. Even though it's in line with the industry average of 9.2%, it's still a low return by itself.

Check out our latest analysis for NNIT

In the above chart we have measured NNIT's prior ROCE against its prior performance, but the future is arguably more important. If you'd like, you can check out the forecasts from the analysts covering NNIT here for free.

How Are Returns Trending?

On the surface, the trend of ROCE at NNIT doesn't inspire confidence. To be more specific, ROCE has fallen from 32% over the last five years. Meanwhile, the business is utilizing more capital but this hasn't moved the needle much in terms of sales in the past 12 months, so this could reflect longer term investments. It may take some time before the company starts to see any change in earnings from these investments.

The Bottom Line

To conclude, we've found that NNIT is reinvesting in the business, but returns have been falling. Since the stock has declined 26% 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 NNIT has the makings of a multi-bagger.

If you'd like to know about the risks facing NNIT, we've discovered 3 warning signs that you should be aware of.

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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