Emova Group (EPA:ALEMV) Is Doing The Right Things To Multiply Its Share Price

What are the early trends we should look for to identify a stock that could multiply in value over the long term? In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. With that in mind, we've noticed some promising trends at Emova Group (EPA:ALEMV) so let's look a bit deeper.

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 Emova Group, this is the formula:

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

0.077 = €4.7m ÷ (€80m - €19m) (Based on the trailing twelve months to March 2023).

Therefore, Emova Group has an ROCE of 7.7%. In absolute terms, that's a low return but it's around the Specialty Retail industry average of 7.4%.

View our latest analysis for Emova Group

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

The Trend Of ROCE

Emova Group has recently broken into profitability so their prior investments seem to be paying off. The company was generating losses five years ago, but now it's earning 7.7% which is a sight for sore eyes. Not only that, but the company is utilizing 52% more capital than before, but that's to be expected from a company trying to break into profitability. This can tell us that the company has plenty of reinvestment opportunities that are able to generate higher returns.

Our Take On Emova Group's ROCE

To the delight of most shareholders, Emova Group has now broken into profitability. And since the stock has fallen 66% over the last five years, there might be an opportunity here. With that in mind, we believe the promising trends warrant this stock for further investigation.

One more thing: We've identified 4 warning signs with Emova Group (at least 1 which shouldn't be ignored) , and understanding these would certainly be useful.

While Emova Group 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.