Be Wary Of Plastiques du Val de Loire (EPA:PVL) And Its Returns On Capital

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing 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. In light of that, when we looked at Plastiques du Val de Loire (EPA:PVL) and its ROCE trend, we weren't exactly thrilled.

What is 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. The formula for this calculation on Plastiques du Val de Loire is:

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

0.035 = €18m ÷ (€772m - €258m) (Based on the trailing twelve months to September 2021).

So, Plastiques du Val de Loire has an ROCE of 3.5%. In absolute terms, that's a low return and it also under-performs the Chemicals industry average of 8.4%.

See our latest analysis for Plastiques du Val de Loire

Above you can see how the current ROCE for Plastiques du Val de Loire compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like, you can check out the forecasts from the analysts covering Plastiques du Val de Loire here for free.

The Trend Of ROCE

In terms of Plastiques du Val de Loire's historical ROCE movements, the trend isn't fantastic. To be more specific, ROCE has fallen from 15% over the last five years. However it looks like Plastiques du Val de Loire 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.

The Key Takeaway

In summary, Plastiques du Val de Loire is reinvesting funds back into the business for growth but unfortunately it looks like sales haven't increased much just yet. It seems that investors have little hope of these trends getting any better and that may have partly contributed to the stock collapsing 82% in the last five years. Therefore based on the analysis done in this article, we don't think Plastiques du Val de Loire has the makings of a multi-bagger.

If you'd like to know more about Plastiques du Val de Loire, we've spotted 5 warning signs, and 1 of them doesn't sit too well with us.

While Plastiques du Val de Loire 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.