Stock Analysis

Has PlanetMedia (EPA:ALPLA) Got What It Takes To Become A Multi-Bagger?

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ENXTPA:ALPLA
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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. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. However, after briefly looking over the numbers, we don't think PlanetMedia (EPA:ALPLA) has the makings of a multi-bagger going forward, but let's have a look at why that may be.

What is 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. Analysts use this formula to calculate it for PlanetMedia:

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

0.065 = €668k ÷ (€15m - €4.2m) (Based on the trailing twelve months to June 2020).

So, PlanetMedia has an ROCE of 6.5%. On its own that's a low return, but compared to the average of 4.7% generated by the Interactive Media and Services industry, it's much better.

View our latest analysis for PlanetMedia

roce
ENXTPA:ALPLA Return on Capital Employed March 6th 2021

While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you want to delve into the historical earnings, revenue and cash flow of PlanetMedia, check out these free graphs here.

So How Is PlanetMedia's ROCE Trending?

In terms of PlanetMedia's historical ROCE movements, the trend isn't fantastic. Around five years ago the returns on capital were 29%, but since then they've fallen to 6.5%. And considering revenue has dropped while employing more capital, we'd be cautious. This could mean that the business is losing its competitive advantage or market share, because while more money is being put into ventures, it's actually producing a lower return - "less bang for their buck" per se.

The Key Takeaway

We're a bit apprehensive about PlanetMedia because despite more capital being deployed in the business, returns on that capital and sales have both fallen. It should come as no surprise then that the stock has fallen 61% over the last five years, so it looks like investors are recognizing these changes. Unless there is a shift to a more positive trajectory in these metrics, we would look elsewhere.

If you want to continue researching PlanetMedia, you might be interested to know about the 3 warning signs that our analysis has discovered.

While PlanetMedia isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

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