Stock Analysis

PlanetMedia (EPA:ALPLA) Is Reinvesting At Lower Rates Of Return

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If you're looking for a multi-bagger, there's a few things to keep an eye out for. 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. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. Having said that, from a first glance at PlanetMedia (EPA:ALPLA) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper look.

Return On Capital Employed (ROCE): What is it?

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 PlanetMedia is:

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

0.032 = €330k ÷ (€14m - €3.6m) (Based on the trailing twelve months to June 2021).

Thus, PlanetMedia has an ROCE of 3.2%. Ultimately, that's a low return and it under-performs the Interactive Media and Services industry average of 9.5%.

See our latest analysis for PlanetMedia

ENXTPA:ALPLA Return on Capital Employed January 28th 2022

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'd like to look at how PlanetMedia has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.

So How Is PlanetMedia's ROCE Trending?

On the surface, the trend of ROCE at PlanetMedia doesn't inspire confidence. Around five years ago the returns on capital were 23%, but since then they've fallen to 3.2%. Meanwhile, the business is utilizing more capital but this hasn't moved the needle much in terms of sales in the past 12 months, so this could reflect longer term investments. It's worth keeping an eye on the company's earnings from here on to see if these investments do end up contributing to the bottom line.

The Bottom Line On PlanetMedia's ROCE

Bringing it all together, while we're somewhat encouraged by PlanetMedia's reinvestment in its own business, we're aware that returns are shrinking. Moreover, since the stock has crumbled 72% over the last five years, it appears investors are expecting the worst. On the whole, we aren't too inspired by the underlying trends and we think there may be better chances of finding a multi-bagger elsewhere.

If you'd like to know more about PlanetMedia, we've spotted 4 warning signs, and 2 of them shouldn't be ignored.

While PlanetMedia 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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