Has Malteries Franco-Belges Société Anonyme (EPA:MALT) Got What It Takes To Become A Multi-Bagger?

To find a multi-bagger stock, what are the underlying trends we should look for in a business? Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, 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. Having said that, from a first glance at Malteries Franco-Belges Société Anonyme (EPA:MALT) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper look.

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. Analysts use this formula to calculate it for Malteries Franco-Belges Société Anonyme:

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

0.022 = €5.0m ÷ (€249m - €18m) (Based on the trailing twelve months to June 2020).

Thus, Malteries Franco-Belges Société Anonyme has an ROCE of 2.2%. Ultimately, that's a low return and it under-performs the Food industry average of 7.3%.

Check out our latest analysis for Malteries Franco-Belges Société Anonyme

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

What Can We Tell From Malteries Franco-Belges Société Anonyme's ROCE Trend?

On the surface, the trend of ROCE at Malteries Franco-Belges Société Anonyme doesn't inspire confidence. Around five years ago the returns on capital were 3.1%, but since then they've fallen to 2.2%. However it looks like Malteries Franco-Belges Société Anonyme might be reinvesting for long term growth because while capital employed has increased, the company's sales haven't changed much in the last 12 months. It may take some time before the company starts to see any change in earnings from these investments.

What We Can Learn From Malteries Franco-Belges Société Anonyme's ROCE

To conclude, we've found that Malteries Franco-Belges Société Anonyme is reinvesting in the business, but returns have been falling. Investors must think there's better things to come because the stock has knocked it out of the park, delivering a 161% gain to shareholders who have held over the last five years. However, unless these underlying trends turn more positive, we wouldn't get our hopes up too high.

On a final note, we've found 1 warning sign for Malteries Franco-Belges Société Anonyme that we think you should be aware of.

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive returns on equity.

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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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