Is Groupe Pizzorno Environnement (EPA:GPE) Using Capital Effectively?

If you're looking at a mature business that's past the growth phase, what are some of the underlying trends that pop up? More often than not, we'll see a declining return on capital employed (ROCE) and a declining amount of capital employed. This combination can tell you that not only is the company investing less, it's earning less on what it does invest. In light of that, from a first glance at Groupe Pizzorno Environnement (EPA:GPE), we've spotted some signs that it could be struggling, so let's investigate.

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. Analysts use this formula to calculate it for Groupe Pizzorno Environnement:

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

0.012 = €2.1m ÷ (€283m - €108m) (Based on the trailing twelve months to June 2020).

Thus, Groupe Pizzorno Environnement has an ROCE of 1.2%. Ultimately, that's a low return and it under-performs the Commercial Services industry average of 5.7%.

Check out our latest analysis for Groupe Pizzorno Environnement

In the above chart we have measured Groupe Pizzorno Environnement's prior ROCE against its prior performance, but the future is arguably more important. If you're interested, you can view the analysts predictions in our free report on analyst forecasts for the company.

What The Trend Of ROCE Can Tell Us

There is reason to be cautious about Groupe Pizzorno Environnement, given the returns are trending downwards. About five years ago, returns on capital were 5.9%, however they're now substantially lower than that as we saw above. Meanwhile, capital employed in the business has stayed roughly the flat over the period. Since returns are falling and the business has the same amount of assets employed, this can suggest it's a mature business that hasn't had much growth in the last five years. If these trends continue, we wouldn't expect Groupe Pizzorno Environnement to turn into a multi-bagger.

In Conclusion...

In summary, it's unfortunate that Groupe Pizzorno Environnement is generating lower returns from the same amount of capital. But investors must be expecting an improvement of sorts because over the last five yearsthe stock has delivered a respectable 52% return. In any case, the current underlying trends don't bode well for long term performance so unless they reverse, we'd start looking elsewhere.

If you want to continue researching Groupe Pizzorno Environnement, you might be interested to know about the 2 warning signs that our analysis has discovered.

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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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