Artmarket.com's (EPA:PRC) Returns On Capital Not Reflecting Well On The Business

Published
August 05, 2022
ENXTPA:PRC
Source: Shutterstock

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount 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.

Return On Capital Employed (ROCE): What Is It?

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. To calculate this metric for Artmarket.com, this is the formula:

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

0.025 = €877k ÷ (€40m - €5.2m) (Based on the trailing twelve months to December 2021).

So, Artmarket.com has an ROCE of 2.5%. In absolute terms, that's a low return and it also under-performs the Interactive Media and Services industry average of 18%.

Check out our latest analysis for Artmarket.com

roce
ENXTPA:PRC Return on Capital Employed August 5th 2022

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 want to delve into the historical earnings, revenue and cash flow of Artmarket.com, check out these free graphs here.

What The Trend Of ROCE Can Tell Us

On the surface, the trend of ROCE at Artmarket.com doesn't inspire confidence. Around five years ago the returns on capital were 5.1%, but since then they've fallen to 2.5%. 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

In summary, Artmarket.com is reinvesting funds back into the business for growth but unfortunately it looks like sales haven't increased much just yet. Since the stock has declined 53% over the last five years, investors may not be too optimistic on this trend improving either. 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 separate note, we've found 1 warning sign for Artmarket.com you'll probably want to know about.

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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