SA Onlineformapro (EPA:MLONL) Will Want To Turn Around Its Return Trends

If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out for. Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. However, after briefly looking over the numbers, we don't think SA Onlineformapro (EPA:MLONL) has the makings of a multi-bagger going forward, but let's have a look at why that may be.

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Understanding Return On Capital Employed (ROCE)

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 SA Onlineformapro:

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

0.0022 = €27k ÷ (€16m - €4.1m) (Based on the trailing twelve months to June 2024).

Therefore, SA Onlineformapro has an ROCE of 0.2%. In absolute terms, that's a low return and it also under-performs the Consumer Services industry average of 10%.

View our latest analysis for SA Onlineformapro

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

How Are Returns Trending?

In terms of SA Onlineformapro's historical ROCE movements, the trend isn't fantastic. Around five years ago the returns on capital were 6.5%, but since then they've fallen to 0.2%. Given the business is employing more capital while revenue has slipped, this is a bit concerning. If this were to continue, you might be looking at a company that is trying to reinvest for growth but is actually losing market share since sales haven't increased.

The Bottom Line On SA Onlineformapro's ROCE

In summary, we're somewhat concerned by SA Onlineformapro's diminishing returns on increasing amounts of capital. Long term shareholders who've owned the stock over the last five years have experienced a 55% depreciation in their investment, so it appears the market might not like these trends either. That being the case, unless the underlying trends revert to a more positive trajectory, we'd consider looking elsewhere.

SA Onlineformapro does come with some risks though, we found 5 warning signs in our investment analysis, and 3 of those are a bit unpleasant...

While SA Onlineformapro 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. 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.