The Return Trends At Emova Group (EPA:ALEMV) Look Promising

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. Speaking of which, we noticed some great changes in Emova Group's (EPA:ALEMV) returns on capital, so let's have a 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 Emova Group, this is the formula:

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

0.0089 = €465k ÷ (€76m - €24m) (Based on the trailing twelve months to September 2020).

Therefore, Emova Group has an ROCE of 0.9%. In absolute terms, that's a low return and it also under-performs the Specialty Retail industry average of 6.4%.

View our latest analysis for Emova Group

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

How Are Returns Trending?

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 0.9% which is a sight for sore eyes. Not only that, but the company is utilizing 38% 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.

The Key Takeaway

To the delight of most shareholders, Emova Group has now broken into profitability. And since the stock has dived 77% over the last five years, there may be other factors affecting the company's prospects. Regardless, we think the underlying fundamentals warrant this stock for further investigation.

On a final note, we found 2 warning signs for Emova Group (1 doesn't sit too well with us) you should be aware of.

While Emova Group 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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