Returns On Capital At Passat Société Anonyme (EPA:PSAT) Have Hit The Brakes

By
Simply Wall St
Published
July 26, 2021
ENXTPA:PSAT
Source: Shutterstock

To find a multi-bagger stock, what are the underlying trends we should look for in a business? 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. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. Having said that, from a first glance at Passat Société Anonyme (EPA:PSAT) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper 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 Passat Société Anonyme, this is the formula:

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

0.095 = €3.3m ÷ (€41m - €6.9m) (Based on the trailing twelve months to December 2020).

Therefore, Passat Société Anonyme has an ROCE of 9.5%. In absolute terms, that's a low return and it also under-performs the Online Retail industry average of 13%.

Check out our latest analysis for Passat Société Anonyme

roce
ENXTPA:PSAT Return on Capital Employed July 27th 2021

Above you can see how the current ROCE for Passat Société Anonyme compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like, you can check out the forecasts from the analysts covering Passat Société Anonyme here for free.

So How Is Passat Société Anonyme's ROCE 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. This tells us the company isn't reinvesting in itself, so it's plausible that it's 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.

In Conclusion...

We can conclude that in regards to Passat Société Anonyme's returns on capital employed and the trends, there isn't much change to report on. Since the stock has gained an impressive 54% over the last five years, investors must think there's better things to come. Ultimately, if the underlying trends persist, we wouldn't hold our breath on it being a multi-bagger going forward.

One final note, you should learn about the 2 warning signs we've spotted with Passat Société Anonyme (including 1 which can't be ignored) .

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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