Artprice.com (EPA:PRC) Might Be Having Difficulty Using Its Capital Effectively

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing amount of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. Although, when we looked at Artprice.com (EPA:PRC), it didn't seem to tick all of these boxes.

What is Return On Capital Employed (ROCE)?

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. Analysts use this formula to calculate it for Artprice.com:

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

0.033 = €1.1m ÷ (€39m - €4.7m) (Based on the trailing twelve months to June 2021).

Therefore, Artprice.com has an ROCE of 3.3%. In absolute terms, that's a low return and it also under-performs the Interactive Media and Services industry average of 9.5%.

See our latest analysis for Artprice.com

Historical performance is a great place to start when researching a stock so above you can see the gauge for Artprice.com's ROCE against it's prior returns. If you want to delve into the historical earnings, revenue and cash flow of Artprice.com, check out these free graphs here.

What Can We Tell From Artprice.com's ROCE Trend?

In terms of Artprice.com's historical ROCE movements, the trend isn't fantastic. Over the last five years, returns on capital have decreased to 3.3% from 5.8% five years ago. 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.

In Conclusion...

To conclude, we've found that Artprice.com is reinvesting in the business, but returns have been falling. And investors appear hesitant that the trends will pick up because the stock has fallen 17% in the last five years. Therefore based on the analysis done in this article, we don't think Artprice.com has the makings of a multi-bagger.

One more thing to note, we've identified 2 warning signs with Artprice.com and understanding them should be part of your investment process.

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive returns on equity.

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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.