Here's What To Make Of Aeroports de Paris' (EPA:ADP) Decelerating Rates Of Return

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. 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. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. In light of that, when we looked at Aeroports de Paris (EPA:ADP) and its ROCE trend, we weren't exactly thrilled.

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 Aeroports de Paris, this is the formula:

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

0.068 = €1.0b ÷ (€19b - €4.2b) (Based on the trailing twelve months to June 2023).

Therefore, Aeroports de Paris has an ROCE of 6.8%. In absolute terms, that's a low return and it also under-performs the Infrastructure industry average of 8.8%.

See our latest analysis for Aeroports de Paris

In the above chart we have measured Aeroports de Paris' prior ROCE against its prior performance, but the future is arguably more important. If you're interested, you can view the analysts predictions in our free report on analyst forecasts for the company.

What Can We Tell From Aeroports de Paris' ROCE Trend?

Things have been pretty stable at Aeroports de Paris, with its capital employed and returns on that capital staying somewhat the same for the last five years. It's not uncommon to see this when looking at a mature and stable business that isn't re-investing its earnings because it has likely passed that phase of the business cycle. With that in mind, unless investment picks up again in the future, we wouldn't expect Aeroports de Paris to be a multi-bagger going forward. That being the case, it makes sense that Aeroports de Paris has been paying out 61% of its earnings to its shareholders. Most shareholders probably know this and own the stock for its dividend.

In Conclusion...

In a nutshell, Aeroports de Paris has been trudging along with the same returns from the same amount of capital over the last five years. Since the stock has declined 35% over the last five years, investors may not be too optimistic on this trend improving either. Therefore based on the analysis done in this article, we don't think Aeroports de Paris has the makings of a multi-bagger.

Aeroports de Paris does have some risks, we noticed 3 warning signs (and 1 which is concerning) we think you should know about.

While Aeroports de Paris 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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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.