Should You Be Impressed By Société Marseillaise du Tunnel Prado Carénage's (EPA:SMTPC) Returns on Capital?

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. 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 investigating Société Marseillaise du Tunnel Prado Carénage (EPA:SMTPC), we don't think it's current trends fit the mold of a multi-bagger.

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 Société Marseillaise du Tunnel Prado Carénage:

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

0.11 = €13m ÷ (€124m - €4.6m) (Based on the trailing twelve months to June 2020).

Therefore, Société Marseillaise du Tunnel Prado Carénage has an ROCE of 11%. On its own, that's a standard return, however it's much better than the 6.2% generated by the Infrastructure industry.

See our latest analysis for Société Marseillaise du Tunnel Prado Carénage

Above you can see how the current ROCE for Société Marseillaise du Tunnel Prado Carénage compares to its prior returns on capital, but there's only so much you can tell from the past. If you're interested, you can view the analysts predictions in our free report on analyst forecasts for the company.

The Trend Of ROCE

When we looked at the ROCE trend at Société Marseillaise du Tunnel Prado Carénage, we didn't gain much confidence. Over the last five years, returns on capital have decreased to 11% from 28% five years ago. And considering revenue has dropped while employing more capital, we'd be cautious. This could mean that the business is losing its competitive advantage or market share, because while more money is being put into ventures, it's actually producing a lower return - "less bang for their buck" per se.

The Bottom Line On Société Marseillaise du Tunnel Prado Carénage's ROCE

We're a bit apprehensive about Société Marseillaise du Tunnel Prado Carénage because despite more capital being deployed in the business, returns on that capital and sales have both fallen. Long term shareholders who've owned the stock over the last five years have experienced a 37% depreciation in their investment, so it appears the market might not like these trends either. Unless there is a shift to a more positive trajectory in these metrics, we would look elsewhere.

If you want to know some of the risks facing Société Marseillaise du Tunnel Prado Carénage we've found 2 warning signs (1 is concerning!) that you should be aware of before investing here.

While Société Marseillaise du Tunnel Prado Carénage 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. 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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