The Trends At Vranken-Pommery Monopole Société Anonyme (EPA:VRAP) That You Should Know About

To find a multi-bagger stock, what are the underlying trends we should look for in a business? Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's amount of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. However, after briefly looking over the numbers, we don't think Vranken-Pommery Monopole Société Anonyme (EPA:VRAP) has the makings of a multi-bagger going forward, but let's have a look at why that may be.

Understanding Return On Capital Employed (ROCE)

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. To calculate this metric for Vranken-Pommery Monopole Société Anonyme, this is the formula:

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

0.025 = €19m ÷ (€1.3b - €505m) (Based on the trailing twelve months to June 2020).

Therefore, Vranken-Pommery Monopole Société Anonyme has an ROCE of 2.5%. Ultimately, that's a low return and it under-performs the Beverage industry average of 3.6%.

View our latest analysis for Vranken-Pommery Monopole Société Anonyme

In the above chart we have measured Vranken-Pommery Monopole Société Anonyme's prior ROCE against its prior performance, but the future is arguably more important. If you're interested, you can view the analysts predictions in our free report on analyst forecasts for the company.

The Trend Of ROCE

There hasn't been much to report for Vranken-Pommery Monopole Société Anonyme's returns and its level of capital employed because both metrics have been steady for the past five years. Businesses with these traits tend to be mature and steady operations because they're past the growth phase. So unless we see a substantial change at Vranken-Pommery Monopole Société Anonyme in terms of ROCE and additional investments being made, we wouldn't hold our breath on it being a multi-bagger. That being the case, it makes sense that Vranken-Pommery Monopole Société Anonyme has been paying out 69% of its earnings to its shareholders. These mature businesses typically have reliable earnings and not many places to reinvest them, so the next best option is to put the earnings into shareholders pockets.

Another point to note, we noticed the company has increased current liabilities over the last five years. This is intriguing because if current liabilities hadn't increased to 40% of total assets, this reported ROCE would probably be less than2.5% because total capital employed would be higher.The 2.5% ROCE could be even lower if current liabilities weren't 40% of total assets, because the the formula would show a larger base of total capital employed. So while current liabilities isn't high right now, keep an eye out in case it increases further, because this can introduce some elements of risk.

The Key Takeaway

In summary, Vranken-Pommery Monopole Société Anonyme isn't compounding its earnings but is generating stable returns on the same amount of capital employed. Unsurprisingly then, the total return to shareholders over the last five years has been flat. Therefore based on the analysis done in this article, we don't think Vranken-Pommery Monopole Société Anonyme has the makings of a multi-bagger.

If you want to know some of the risks facing Vranken-Pommery Monopole Société Anonyme we've found 3 warning signs (1 makes us a bit uncomfortable!) that you should be aware of before investing here.

While Vranken-Pommery Monopole 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. 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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