Slowing Rates Of Return At Aeroports de Paris (EPA:ADP) Leave Little Room For Excitement

What trends should we look for it we want to identify stocks that can multiply in value over the long term? Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. However, after briefly looking over the numbers, we don't think Aeroports de Paris (EPA:ADP) has the makings of a multi-bagger going forward, but let's have a look at why that may be.

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Return On Capital Employed (ROCE): What Is It?

For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. The formula for this calculation on Aeroports de Paris is:

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

0.071 = €1.2b ÷ (€20b - €4.0b) (Based on the trailing twelve months to December 2024).

So, Aeroports de Paris has an ROCE of 7.1%. On its own, that's a low figure but it's around the 7.6% average generated by the Infrastructure industry.

View our latest analysis for Aeroports de Paris

Above you can see how the current ROCE for Aeroports de Paris 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 Aeroports de Paris for free.

So How Is Aeroports de Paris' ROCE Trending?

Over the past five years, Aeroports de Paris' ROCE and capital employed have both remained mostly flat. 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. So unless we see a substantial change at Aeroports de Paris in terms of ROCE and additional investments being made, we wouldn't hold our breath on it being a multi-bagger. With fewer investment opportunities, it makes sense that Aeroports de Paris has been paying out a decent 58% of its earnings to shareholders. Unless businesses have highly compelling growth opportunities, they'll typically return some money to shareholders.

What We Can Learn From Aeroports de Paris' ROCE

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. And investors may be recognizing these trends since the stock has only returned a total of 37% to shareholders over the last five years. So if you're looking for a multi-bagger, the underlying trends indicate you may have better chances elsewhere.

Aeroports de Paris does come with some risks though, we found 4 warning signs in our investment analysis, and 1 of those is concerning...

While Aeroports de Paris 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.

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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.