Compagnie Générale des Établissements Michelin Société en commandite par actions (EPA:ML) Has Some Way To Go To Become A Multi-Bagger

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? 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. However, after briefly looking over the numbers, we don't think Compagnie Générale des Établissements Michelin Société en commandite par actions (EPA:ML) has the makings of a multi-bagger going forward, but let's have a look at why that may be.

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 Compagnie Générale des Établissements Michelin Société en commandite par actions:

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

0.12 = €3.4b ÷ (€36b - €8.2b) (Based on the trailing twelve months to June 2024).

So, Compagnie Générale des Établissements Michelin Société en commandite par actions has an ROCE of 12%. On its own, that's a standard return, however it's much better than the 9.2% generated by the Auto Components industry.

Check out our latest analysis for Compagnie Générale des Établissements Michelin Société en commandite par actions

Above you can see how the current ROCE for Compagnie Générale des Établissements Michelin Société en commandite par actions compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like, you can check out the forecasts from the analysts covering Compagnie Générale des Établissements Michelin Société en commandite par actions for free.

How Are Returns Trending?

Over the past five years, Compagnie Générale des Établissements Michelin Société en commandite par actions' ROCE and capital employed have both remained mostly flat. This tells us the company isn't reinvesting in itself, so it's plausible that it's past the growth phase. So don't be surprised if Compagnie Générale des Établissements Michelin Société en commandite par actions doesn't end up being a multi-bagger in a few years time. This probably explains why Compagnie Générale des Établissements Michelin Société en commandite par actions is paying out 55% of its income to shareholders in the form of dividends. Unless businesses have highly compelling growth opportunities, they'll typically return some money to shareholders.

The Bottom Line

We can conclude that in regards to Compagnie Générale des Établissements Michelin Société en commandite par actions' returns on capital employed and the trends, there isn't much change to report on. Since the stock has gained an impressive 68% 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 want to continue researching Compagnie Générale des Établissements Michelin Société en commandite par actions, you might be interested to know about the 2 warning signs that our analysis has discovered.

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive returns on equity.

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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.