Groupe MEDIA 6 (EPA:EDI) Has Some Way To Go To Become A Multi-Bagger

Finding a business that has the potential to grow substantially is not easy, but it is possible if we look at a few key financial metrics. Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing 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 Groupe MEDIA 6 (EPA:EDI) 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)

For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. Analysts use this formula to calculate it for Groupe MEDIA 6:

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

0.12 = €5.6m ÷ (€74m - €28m) (Based on the trailing twelve months to September 2023).

Therefore, Groupe MEDIA 6 has an ROCE of 12%. In absolute terms, that's a satisfactory return, but compared to the Media industry average of 9.7% it's much better.

See our latest analysis for Groupe MEDIA 6

Historical performance is a great place to start when researching a stock so above you can see the gauge for Groupe MEDIA 6's ROCE against it's prior returns. If you'd like to look at how Groupe MEDIA 6 has performed in the past in other metrics, you can view this free graph of Groupe MEDIA 6's past earnings, revenue and cash flow.

What Can We Tell From Groupe MEDIA 6's ROCE Trend?

There hasn't been much to report for Groupe MEDIA 6's returns and its level of capital employed because both metrics have been steady for the past five years. It's not uncommon to see this when looking at a mature and stable business that isn't re-investing its earnings because it has likely passed that phase of the business cycle. So unless we see a substantial change at Groupe MEDIA 6 in terms of ROCE and additional investments being made, we wouldn't hold our breath on it being a multi-bagger.

What We Can Learn From Groupe MEDIA 6's ROCE

In a nutshell, Groupe MEDIA 6 has been trudging along with the same returns from the same amount of capital over the last five years. Additionally, the stock's total return to shareholders over the last five years has been flat, which isn't too surprising. All in all, the inherent trends aren't typical of multi-baggers, so if that's what you're after, we think you might have more luck elsewhere.

On a final note, we found 3 warning signs for Groupe MEDIA 6 (1 can't be ignored) you should be aware of.

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high returns on equity.

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.