Stock Analysis

Are Investors Concerned With What's Going On At Les Docks des Pétroles d'Ambès -SA (EPA:DPAM)?

  •  Updated
Source: Shutterstock

Ignoring the stock price of a company, what are the underlying trends that tell us a business is past the growth phase? More often than not, we'll see a declining return on capital employed (ROCE) and a declining amount of capital employed. Ultimately this means that the company is earning less per dollar invested and on top of that, it's shrinking its base of capital employed. And from a first read, things don't look too good at Les Docks des Pétroles d'Ambès -SA (EPA:DPAM), so let's see why.

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 Les Docks des Pétroles d'Ambès -SA:

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

0.082 = €4.5m ÷ (€58m - €2.1m) (Based on the trailing twelve months to June 2020).

So, Les Docks des Pétroles d'Ambès -SA has an ROCE of 8.2%. In absolute terms, that's a low return, but it's much better than the Oil and Gas industry average of 2.8%.

View our latest analysis for Les Docks des Pétroles d'Ambès -SA

ENXTPA:DPAM Return on Capital Employed January 11th 2021

Historical performance is a great place to start when researching a stock so above you can see the gauge for Les Docks des Pétroles d'Ambès -SA's ROCE against it's prior returns. If you want to delve into the historical earnings, revenue and cash flow of Les Docks des Pétroles d'Ambès -SA, check out these free graphs here.

What The Trend Of ROCE Can Tell Us

We are a bit worried about the trend of returns on capital at Les Docks des Pétroles d'Ambès -SA. About five years ago, returns on capital were 13%, 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. Companies that exhibit these attributes tend to not be shrinking, but they can be mature and facing pressure on their margins from competition. If these trends continue, we wouldn't expect Les Docks des Pétroles d'Ambès -SA to turn into a multi-bagger.

The Bottom Line

All in all, the lower returns from the same amount of capital employed aren't exactly signs of a compounding machine. Since the stock has skyrocketed 133% over the last five years, it looks like investors have high expectations of the stock. Regardless, we don't feel too comfortable with the fundamentals so we'd be steering clear of this stock for now.

Les Docks des Pétroles d'Ambès -SA does have some risks, we noticed 3 warning signs (and 1 which is concerning) we think you should know about.

While Les Docks des Pétroles d'Ambès -SA 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.

If you’re looking to trade Les Docks des Pétroles d'Ambès -SA, open an account with the lowest-cost* platform trusted by professionals, Interactive Brokers. Their clients from over 200 countries and territories trade stocks, options, futures, forex, bonds and funds worldwide from a single integrated account. Promoted

Valuation is complex, but we're helping make it simple.

Find out whether Les Docks des Pétroles d'Ambès -SA is potentially over or undervalued by checking out our comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, insider transactions and financial health.

View the Free Analysis