Viridien Société anonyme's (EPA:VIRI) Returns Have Hit A Wall

There are a few key trends to look for if we want to identify the next multi-bagger. Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing 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 Viridien Société anonyme (EPA:VIRI) has the makings of a multi-bagger going forward, but let's have a look at why that may be.

We've discovered 3 warning signs about Viridien Société anonyme. View them for free.

What Is Return On Capital Employed (ROCE)?

For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. To calculate this metric for Viridien Société anonyme, this is the formula:

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

0.08 = US$187m ÷ (US$2.8b - US$507m) (Based on the trailing twelve months to December 2024).

Therefore, Viridien Société anonyme has an ROCE of 8.0%. Ultimately, that's a low return and it under-performs the Energy Services industry average of 11%.

See our latest analysis for Viridien Société anonyme

Above you can see how the current ROCE for Viridien Société anonyme compares to its prior returns on capital, but there's only so much you can tell from the past. If you're interested, you can view the analysts predictions in our free analyst report for Viridien Société anonyme .

So How Is Viridien Société anonyme's ROCE Trending?

We've noticed that although returns on capital are flat over the last five years, the amount of capital employed in the business has fallen 21% in that same period. This indicates to us that assets are being sold and thus the business is likely shrinking, which you'll remember isn't the typical ingredients for an up-and-coming multi-bagger. Not only that, but the low returns on this capital mentioned earlier would leave most investors unimpressed.

The Bottom Line

In summary, Viridien Société anonyme isn't reinvesting funds back into the business and returns aren't growing. And in the last five years, the stock has given away 53% so the market doesn't look too hopeful on these trends strengthening any time soon. Therefore based on the analysis done in this article, we don't think Viridien Société anonyme has the makings of a multi-bagger.

Viridien Société anonyme does come with some risks though, we found 3 warning signs in our investment analysis, and 1 of those is significant...

While Viridien Société anonyme 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.