The Trends At Compagnie Du Mont-Blanc (EPA:MLCMB) That You Should Know About

If you're looking for a multi-bagger, there's a few things to keep an eye out 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. 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 Compagnie Du Mont-Blanc (EPA:MLCMB) 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?

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. To calculate this metric for Compagnie Du Mont-Blanc, this is the formula:

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

0.036 = €11m ÷ (€345m - €51m) (Based on the trailing twelve months to May 2020).

Thus, Compagnie Du Mont-Blanc has an ROCE of 3.6%. In absolute terms, that's a low return and it also under-performs the Hospitality industry average of 6.6%.

View our latest analysis for Compagnie Du Mont-Blanc

Historical performance is a great place to start when researching a stock so above you can see the gauge for Compagnie Du Mont-Blanc's ROCE against it's prior returns. If you're interested in investigating Compagnie Du Mont-Blanc's past further, check out this free graph of past earnings, revenue and cash flow.

How Are Returns Trending?

When we looked at the ROCE trend at Compagnie Du Mont-Blanc, we didn't gain much confidence. To be more specific, ROCE has fallen from 5.6% 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 On Compagnie Du Mont-Blanc's ROCE

To conclude, we've found that Compagnie Du Mont-Blanc is reinvesting in the business, but returns have been falling. Although the market must be expecting these trends to improve because the stock has gained 46% over the last five years. However, unless these underlying trends turn more positive, we wouldn't get our hopes up too high.

Compagnie Du Mont-Blanc does have some risks though, and we've spotted 3 warning signs for Compagnie Du Mont-Blanc that you might be interested in.

While Compagnie Du Mont-Blanc may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.

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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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