Will Eo2 Société Anonyme (EPA:ALEO2) Multiply In Value Going Forward?

What trends should we look for it we want to identify stocks that can multiply in value over the long term? 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. Although, when we looked at Eo2 Société Anonyme (EPA:ALEO2), it didn't seem to tick all of these boxes.

Understanding Return On Capital Employed (ROCE)

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. To calculate this metric for Eo2 Société Anonyme, this is the formula:

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

0.033 = €1.0m ÷ (€39m - €8.1m) (Based on the trailing twelve months to February 2020).

So, Eo2 Société Anonyme has an ROCE of 3.3%. On its own that's a low return on capital but it's in line with the industry's average returns of 3.3%.

View our latest analysis for Eo2 Société Anonyme

Historical performance is a great place to start when researching a stock so above you can see the gauge for Eo2 Société Anonyme's ROCE against it's prior returns. If you'd like to look at how Eo2 Société Anonyme has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.

How Are Returns Trending?

The returns on capital haven't changed much for Eo2 Société Anonyme in recent years. The company has consistently earned 3.3% for the last five years, and the capital employed within the business has risen 54% in that time. Given the company has increased the amount of capital employed, it appears the investments that have been made simply don't provide a high return on capital.

The Bottom Line On Eo2 Société Anonyme's ROCE

In conclusion, Eo2 Société Anonyme has been investing more capital into the business, but returns on that capital haven't increased. Since the stock has gained an impressive 89% 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.

One more thing, we've spotted 4 warning signs facing Eo2 Société Anonyme that you might find interesting.

While Eo2 Société Anonyme 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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