Some Investors May Be Worried About Artprice.com's (EPA:PRC) Returns On Capital

If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out for. Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's 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. However, after investigating Artprice.com (EPA:PRC), we don't think it's current trends fit the mold of a multi-bagger.

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. To calculate this metric for Artprice.com, this is the formula:

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

0.043 = €924k ÷ (€22m - €980k) (Based on the trailing twelve months to December 2020).

Therefore, Artprice.com has an ROCE of 4.3%. Ultimately, that's a low return and it under-performs the Interactive Media and Services industry average of 10%.

View 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're interested in investigating Artprice.com's past further, check out this free graph of past earnings, revenue and cash flow.

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

On the surface, the trend of ROCE at Artprice.com doesn't inspire confidence. To be more specific, ROCE has fallen from 6.1% over the last five years. 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 may take some time before the company starts to see any change in earnings from these investments.

What We Can Learn From Artprice.com's ROCE

To conclude, we've found that Artprice.com is reinvesting in the business, but returns have been falling. Since the stock has declined 38% over the last five years, investors may not be too optimistic on this trend improving either. On the whole, we aren't too inspired by the underlying trends and we think there may be better chances of finding a multi-bagger elsewhere.

One more thing, we've spotted 1 warning sign facing Artprice.com that you might find interesting.

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.

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This article by Simply Wall St is general in nature. 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.
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