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

By
Simply Wall St
Published
May 20, 2022
ENXTPA:ODET
Source: Shutterstock

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing 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. Having said that, from a first glance at Compagnie de l'Odet (EPA:ODET) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper look.

What is 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. 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)

0.047 = €1.9b ÷ (€58b - €17b) (Based on the trailing twelve months to June 2021).

Thus, Compagnie de l'Odet has an ROCE of 4.7%. In absolute terms, that's a low return and it also under-performs the Logistics industry average of 13%.

See our latest analysis for Compagnie de l'Odet

roce
ENXTPA:ODET Return on Capital Employed May 20th 2022

While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you want to delve into the historical earnings, revenue and cash flow of Compagnie de l'Odet, check out these free graphs here.

How Are Returns Trending?

The returns on capital haven't changed much for Compagnie de l'Odet in recent years. The company has consistently earned 4.7% for the last five years, and the capital employed within the business has risen 227% in that time. This poor ROCE doesn't inspire confidence right now, and with the increase in capital employed, it's evident that the business isn't deploying the funds into high return investments.

The Key Takeaway

In summary, Compagnie de l'Odet has simply been reinvesting capital and generating the same low rate of return as before. And with the stock having returned a mere 30% in the last five years to shareholders, you could argue that they're aware of these lackluster trends. So if you're looking for a multi-bagger, the underlying trends indicate you may have better chances elsewhere.

Compagnie de l'Odet does come with some risks though, we found 2 warning signs in our investment analysis, and 1 of those can't be ignored...

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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