Société Marseillaise du Tunnel Prado Carénage (EPA:SMTPC) Could Be Struggling To Allocate Capital

If you're looking for a multi-bagger, there's a few things to keep an eye out for. Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. 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.

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. 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)

0.081 = €11m ÷ (€132m - €1.9m) (Based on the trailing twelve months to December 2020).

Therefore, Société Marseillaise du Tunnel Prado Carénage has an ROCE of 8.1%. On its own, that's a low figure but it's around the 7.1% average generated by the Infrastructure industry.

Check out 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'd like to see what analysts are forecasting going forward, you should check out our free report for Société Marseillaise du Tunnel Prado Carénage.

What Does the ROCE Trend For Société Marseillaise du Tunnel Prado Carénage Tell Us?

When we looked at the ROCE trend at Société Marseillaise du Tunnel Prado Carénage, we didn't gain much confidence. To be more specific, ROCE has fallen from 26% over the last five years. And considering revenue has dropped while employing more capital, we'd be cautious. If this were to continue, you might be looking at a company that is trying to reinvest for growth but is actually losing market share since sales haven't increased.

Our Take 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. It should come as no surprise then that the stock has fallen 25% over the last five years, so it looks like investors are recognizing these changes. With underlying trends that aren't great in these areas, we'd consider looking elsewhere.

If you'd like to know more about Société Marseillaise du Tunnel Prado Carénage, we've spotted 2 warning signs, and 1 of them is concerning.

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high returns on equity.

When trading Société Marseillaise du Tunnel Prado Carénage or any other investment, use the platform considered by many to be the Professional's Gateway to the Worlds Market, Interactive Brokers. You get the lowest-cost* trading on stocks, options, futures, forex, bonds and funds worldwide from a single integrated account. Promoted

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.
^*Interactive Brokers Rated Lowest Cost Broker by StockBrokers.com Annual Online Review 2020

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.