Investors Could Be Concerned With Artmarket.com's (EPA:PRC) Returns On Capital

What are the early trends we should look for to identify a stock that could multiply in value over the long term? Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding 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. However, after investigating Artmarket.com (EPA:PRC), we don't think it's current trends fit the mold of a multi-bagger.

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

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed 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)

0.015 = €557k ÷ (€42m - €5.2m) (Based on the trailing twelve months to June 2023).

So, Artmarket.com has an ROCE of 1.5%. In absolute terms, that's a low return and it also under-performs the Interactive Media and Services industry average of 16%.

View our latest analysis for Artmarket.com

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 Artmarket.com has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.

How Are Returns Trending?

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 1.5% from 5.1% five years ago. However it looks like Artmarket.com might be reinvesting for long term growth because while capital employed has increased, the company's sales haven't changed much in the last 12 months. 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

Bringing it all together, while we're somewhat encouraged by Artmarket.com's reinvestment in its own business, we're aware that returns are shrinking. And in the last five years, the stock has given away 57% so the market doesn't look too hopeful on these trends strengthening any time soon. Therefore based on the analysis done in this article, we don't think Artmarket.com has the makings of a multi-bagger.

If you'd like to know more about Artmarket.com, we've spotted 3 warning signs, and 1 of them is a bit unpleasant.

While Artmarket.com 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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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.