The Trends At Installux (EPA:ALLUX) That You Should Know About

To find a multi-bagger stock, what are the underlying trends we should look for in a business? 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. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. However, after briefly looking over the numbers, we don't think Installux (EPA:ALLUX) has the makings of a multi-bagger going forward, but let's have a look at why that may be.

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

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 Installux, this is the formula:

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

0.059 = €6.8m ÷ (€142m - €27m) (Based on the trailing twelve months to June 2020).

Thus, Installux has an ROCE of 5.9%. In absolute terms, that's a low return and it also under-performs the Building industry average of 10%.

Check out our latest analysis for Installux

Historical performance is a great place to start when researching a stock so above you can see the gauge for Installux's ROCE against it's prior returns. If you'd like to look at how Installux has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.

What Can We Tell From Installux's ROCE Trend?

On the surface, the trend of ROCE at Installux doesn't inspire confidence. Around five years ago the returns on capital were 15%, but since then they've fallen to 5.9%. Given the business is employing more capital while revenue has slipped, this is a bit concerning. This could mean that the business is losing its competitive advantage or market share, because while more money is being put into ventures, it's actually producing a lower return - "less bang for their buck" per se.

In Conclusion...

In summary, we're somewhat concerned by Installux's diminishing returns on increasing amounts of capital. However the stock has delivered a 40% return to shareholders over the last five years, so investors might be expecting the trends to turn around. Regardless, we don't feel too comfortable with the fundamentals so we'd be steering clear of this stock for now.

On a final note, we've found 1 warning sign for Installux that we think you should be aware of.

While Installux 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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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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