Return Trends At Passat Société Anonyme (EPA:PSAT) Aren't Appealing

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? 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. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. Although, when we looked at Passat Société Anonyme (EPA:PSAT), it didn't seem to tick all of these boxes.

Understanding Return On Capital Employed (ROCE)

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 Passat Société Anonyme, this is the formula:

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

0.078 = €2.7m ÷ (€46m - €11m) (Based on the trailing twelve months to December 2021).

Thus, Passat Société Anonyme has an ROCE of 7.8%. In absolute terms, that's a low return and it also under-performs the Online Retail industry average of 12%.

See our latest analysis for Passat Société Anonyme

Historical performance is a great place to start when researching a stock so above you can see the gauge for Passat Société Anonyme's ROCE against it's prior returns. If you're interested in investigating Passat Société Anonyme's past further, check out this free graph of past earnings, revenue and cash flow.

How Are Returns Trending?

There hasn't been much to report for Passat Société Anonyme's returns and its level of capital employed because both metrics have been steady for the past five years. Businesses with these traits tend to be mature and steady operations because they're past the growth phase. So unless we see a substantial change at Passat Société Anonyme in terms of ROCE and additional investments being made, we wouldn't hold our breath on it being a multi-bagger.

Our Take On Passat Société Anonyme's ROCE

In summary, Passat Société Anonyme isn't compounding its earnings but is generating stable returns on the same amount of capital employed. And in the last five years, the stock has given away 11% so the market doesn't look too hopeful on these trends strengthening any time soon. All in all, the inherent trends aren't typical of multi-baggers, so if that's what you're after, we think you might have more luck elsewhere.

Passat Société Anonyme does have some risks, we noticed 3 warning signs (and 1 which is a bit concerning) we think you should know about.

While Passat Société Anonyme isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

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.