Stock Analysis

Returns On Capital At Électricite de Strasbourg Société Anonyme (EPA:ELEC) Paint An Interesting Picture

ENXTPA:ELEC
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? 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 briefly looking over the numbers, we don't think Électricite de Strasbourg Société Anonyme (EPA:ELEC) 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)

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. To calculate this metric for Électricite de Strasbourg Société Anonyme, this is the formula:

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

0.066 = €89m ÷ (€1.6b - €273m) (Based on the trailing twelve months to June 2020).

Therefore, Électricite de Strasbourg Société Anonyme has an ROCE of 6.6%. On its own that's a low return on capital but it's in line with the industry's average returns of 7.0%.

See our latest analysis for Électricite de Strasbourg Société Anonyme

roce
ENXTPA:ELEC Return on Capital Employed November 19th 2020

Historical performance is a great place to start when researching a stock so above you can see the gauge for Électricite de Strasbourg Société Anonyme's ROCE against it's prior returns. If you'd like to look at how Électricite de Strasbourg Société Anonyme has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.

What The Trend Of ROCE Can Tell Us

There hasn't been much to report for Électricite de Strasbourg Société Anonyme's returns and its level of capital employed because both metrics have been steady for the past five years. 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 Électricite de Strasbourg Société Anonyme in terms of ROCE and additional investments being made, we wouldn't hold our breath on it being a multi-bagger.

The Bottom Line On Électricite de Strasbourg Société Anonyme's ROCE

In a nutshell, Électricite de Strasbourg Société Anonyme has been trudging along with the same returns from the same amount of capital over the last five years. Although the market must be expecting these trends to improve because the stock has gained 46% over the last five years. Ultimately, if the underlying trends persist, we wouldn't hold our breath on it being a multi-bagger going forward.

On a final note, we've found 1 warning sign for Électricite de Strasbourg Société Anonyme that we think you should be aware of.

While Électricite de Strasbourg Société Anonyme 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.

When trading Électricite de Strasbourg Société Anonyme 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


Valuation is complex, but we're here to simplify it.

Discover if Électricite de Strasbourg Société Anonyme might be undervalued or overvalued with our detailed analysis, featuring fair value estimates, potential risks, dividends, insider trades, and its financial condition.

Access Free Analysis

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@simplywallst.com.