Petros Petropoulos AEBE (ATH:PETRO) Is Doing The Right Things To Multiply Its Share Price

To find a multi-bagger stock, what are the underlying trends we should look for in a business? Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. So when we looked at Petros Petropoulos AEBE (ATH:PETRO) and its trend of ROCE, we really liked what we saw.

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. To calculate this metric for Petros Petropoulos AEBE, this is the formula:

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

0.16 = €8.2m ÷ (€75m - €22m) (Based on the trailing twelve months to March 2021).

So, Petros Petropoulos AEBE has an ROCE of 16%. On its own, that's a standard return, however it's much better than the 8.7% generated by the Machinery industry.

Check out our latest analysis for Petros Petropoulos AEBE

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

What Can We Tell From Petros Petropoulos AEBE's ROCE Trend?

The trends we've noticed at Petros Petropoulos AEBE are quite reassuring. Over the last five years, returns on capital employed have risen substantially to 16%. Basically the business is earning more per dollar of capital invested and in addition to that, 31% more capital is being employed now too. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.

One more thing to note, Petros Petropoulos AEBE has decreased current liabilities to 29% of total assets over this period, which effectively reduces the amount of funding from suppliers or short-term creditors. So this improvement in ROCE has come from the business' underlying economics, which is great to see.

What We Can Learn From Petros Petropoulos AEBE's ROCE

All in all, it's terrific to see that Petros Petropoulos AEBE is reaping the rewards from prior investments and is growing its capital base. And investors seem to expect more of this going forward, since the stock has rewarded shareholders with a 78% return over the last five years. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.

Petros Petropoulos AEBE does come with some risks though, we found 2 warning signs in our investment analysis, and 1 of those can't be ignored...

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.

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