Here's What To Make Of Compagnie de l'Odet's (EPA:ODET) Decelerating Rates Of Return

What are the early trends we should look for to identify a stock that could multiply in value over the long term? Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount 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 Compagnie de l'Odet (EPA:ODET) has the makings of a multi-bagger going forward, but let's have a look at why that may be.

Understanding Return On Capital Employed (ROCE)

For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. Analysts use this formula to calculate it for Compagnie de l'Odet:

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

0.041 = €1.6b ÷ (€56b - €17b) (Based on the trailing twelve months to December 2020).

So, Compagnie de l'Odet has an ROCE of 4.1%. Ultimately, that's a low return and it under-performs the Logistics industry average of 12%.

See our latest analysis for Compagnie de l'Odet

Historical performance is a great place to start when researching a stock so above you can see the gauge for Compagnie de l'Odet's ROCE against it's prior returns. If you want to delve into the historical earnings, revenue and cash flow of Compagnie de l'Odet, check out these free graphs here.

The Trend Of ROCE

In terms of Compagnie de l'Odet's historical ROCE trend, it doesn't exactly demand attention. The company has consistently earned 4.1% for the last five years, and the capital employed within the business has risen 180% in that time. Given the company has increased the amount of capital employed, it appears the investments that have been made simply don't provide a high return on capital.

The Bottom Line

In summary, Compagnie de l'Odet has simply been reinvesting capital and generating the same low rate of return as before. Although the market must be expecting these trends to improve because the stock has gained 44% over the last five years. However, unless these underlying trends turn more positive, we wouldn't get our hopes up too high.

Compagnie de l'Odet does come with some risks though, we found 3 warning signs in our investment analysis, and 2 of those are a bit concerning...

While Compagnie de l'Odet 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. 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.
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