Artmarket.com (EPA:PRC) Will Want To Turn Around Its Return Trends

There are a few key trends to look for if we want to identify the next multi-bagger. Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. Having said that, from a first glance at Artmarket.com (EPA:PRC) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper look.

Understanding 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. The formula for this calculation on Artmarket.com is:

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

0.023 = €825k ÷ (€40m - €4.9m) (Based on the trailing twelve months to June 2022).

Therefore, Artmarket.com has an ROCE of 2.3%. Ultimately, that's a low return and it under-performs the Interactive Media and Services industry average of 15%.

See our latest analysis for Artmarket.com

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

What Does the ROCE Trend For Artmarket.com Tell Us?

On the surface, the trend of ROCE at Artmarket.com doesn't inspire confidence. Over the last five years, returns on capital have decreased to 2.3% from 5.9% five years ago. On the other hand, the company has been employing more capital without a corresponding improvement in sales in the last year, which could suggest these investments are longer term plays. 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 Artmarket.com's ROCE

To conclude, we've found that Artmarket.com is reinvesting in the business, but returns have been falling. And in the last five years, the stock has given away 56% so the market doesn't look too hopeful on these trends strengthening any time soon. In any case, the stock doesn't have these traits of a multi-bagger discussed above, so if that's what you're looking for, we think you'd have more luck elsewhere.

On a final note, we've found 2 warning signs for Artmarket.com that we think you should be aware of.

While Artmarket.com 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.