Returns Are Gaining Momentum At Cogra 48 Société Anonyme (EPA:ALCOG)

To find a multi-bagger stock, what are the underlying trends we should look for in a business? One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing amount of capital employed. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. Speaking of which, we noticed some great changes in Cogra 48 Société Anonyme's (EPA:ALCOG) returns on capital, so let's have a 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. To calculate this metric for Cogra 48 Société Anonyme, this is the formula:

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

0.068 = €2.0m ÷ (€35m - €5.3m) (Based on the trailing twelve months to June 2021).

So, Cogra 48 Société Anonyme has an ROCE of 6.8%. In absolute terms, that's a low return and it also under-performs the Forestry industry average of 9.8%.

Check out our latest analysis for Cogra 48 Société Anonyme

Historical performance is a great place to start when researching a stock so above you can see the gauge for Cogra 48 Société Anonyme's ROCE against it's prior returns. If you're interested in investigating Cogra 48 Société Anonyme's past further, check out this free graph of past earnings, revenue and cash flow.

What Can We Tell From Cogra 48 Société Anonyme's ROCE Trend?

We're delighted to see that Cogra 48 Société Anonyme is reaping rewards from its investments and is now generating some pre-tax profits. About five years ago the company was generating losses but things have turned around because it's now earning 6.8% on its capital. And unsurprisingly, like most companies trying to break into the black, Cogra 48 Société Anonyme is utilizing 76% more capital than it was five years ago. We like this trend, because it tells us the company has profitable reinvestment opportunities available to it, and if it continues going forward that can lead to a multi-bagger performance.

The Bottom Line

In summary, it's great to see that Cogra 48 Société Anonyme has managed to break into profitability and is continuing to reinvest in its business. And investors seem to expect more of this going forward, since the stock has rewarded shareholders with a 64% return over the last five years. So given the stock has proven it has promising trends, it's worth researching the company further to see if these trends are likely to persist.

One more thing, we've spotted 2 warning signs facing Cogra 48 Société Anonyme that you might find interesting.

While Cogra 48 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.