What Do The Returns On Capital At Électricite de Strasbourg Société Anonyme (EPA:ELEC) Tell Us?

What are the early trends we should look for to identify a stock that could multiply in value over the long term? 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. 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.

What is Return On Capital Employed (ROCE)?

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. The formula for this calculation on Électricite de Strasbourg Société Anonyme is:

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).

So, Électricite de Strasbourg Société Anonyme has an ROCE of 6.6%. Even though it's in line with the industry average of 6.6%, it's still a low return by itself.

Check out our latest analysis for Électricite de Strasbourg Société Anonyme

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're interested in investigating Électricite de Strasbourg Société Anonyme's past further, check out this free graph of past earnings, revenue and cash flow.

So How Is Électricite de Strasbourg Société Anonyme's ROCE Trending?

Over the past five years, Électricite de Strasbourg Société Anonyme's ROCE and capital employed have both remained mostly flat. This tells us the company isn't reinvesting in itself, so it's plausible that it's past the growth phase. 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.

In Conclusion...

We can conclude that in regards to Électricite de Strasbourg Société Anonyme's returns on capital employed and the trends, there isn't much change to report on. Since the stock has gained an impressive 55% over the last five years, investors must think there's better things to come. However, unless these underlying trends turn more positive, we wouldn't get our hopes up too high.

One final note, you should learn about the 2 warning signs we've spotted with Électricite de Strasbourg Société Anonyme (including 1 which makes us a bit uncomfortable) .

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.

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