Stock Analysis

Many Would Be Envious Of Motor Oil (Hellas) Corinth Refineries' (ATH:MOH) Excellent Returns On Capital

ATSE:MOH
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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. That's why when we briefly looked at Motor Oil (Hellas) Corinth Refineries' (ATH:MOH) ROCE trend, we were very happy with what we saw.

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. Analysts use this formula to calculate it for Motor Oil (Hellas) Corinth Refineries:

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

0.31 = €1.3b ÷ (€6.4b - €2.3b) (Based on the trailing twelve months to September 2022).

So, Motor Oil (Hellas) Corinth Refineries has an ROCE of 31%. That's a fantastic return and not only that, it outpaces the average of 17% earned by companies in a similar industry.

View our latest analysis for Motor Oil (Hellas) Corinth Refineries

roce
ATSE:MOH Return on Capital Employed April 9th 2023

In the above chart we have measured Motor Oil (Hellas) Corinth Refineries' prior ROCE against its prior performance, but the future is arguably more important. If you'd like to see what analysts are forecasting going forward, you should check out our free report for Motor Oil (Hellas) Corinth Refineries.

SWOT Analysis for Motor Oil (Hellas) Corinth Refineries

Strength
  • Earnings growth over the past year exceeded the industry.
  • Debt is well covered by earnings and cashflows.
  • Dividends are covered by earnings and cash flows.
Weakness
  • Dividend is low compared to the top 25% of dividend payers in the Oil and Gas market.
  • Expensive based on P/E ratio and estimated fair value.
Opportunity
  • MOH's financial characteristics indicate limited near-term opportunities for shareholders.
Threat
  • Annual earnings are forecast to decline for the next 3 years.

What Can We Tell From Motor Oil (Hellas) Corinth Refineries' ROCE Trend?

In terms of Motor Oil (Hellas) Corinth Refineries' history of ROCE, it's quite impressive. The company has employed 111% more capital in the last five years, and the returns on that capital have remained stable at 31%. Returns like this are the envy of most businesses and given it has repeatedly reinvested at these rates, that's even better. You'll see this when looking at well operated businesses or favorable business models.

The Bottom Line

In summary, we're delighted to see that Motor Oil (Hellas) Corinth Refineries has been compounding returns by reinvesting at consistently high rates of return, as these are common traits of a multi-bagger. And since the stock has risen strongly over the last five years, it appears the market might expect this trend to continue. So while the positive underlying trends may be accounted for by investors, we still think this stock is worth looking into further.

If you want to know some of the risks facing Motor Oil (Hellas) Corinth Refineries we've found 4 warning signs (2 are a bit unpleasant!) that you should be aware of before investing here.

If you want to search for more stocks that have been earning high returns, check out this free list of stocks with solid balance sheets that are also earning high returns on equity.

Valuation is complex, but we're helping make it simple.

Find out whether Motor Oil (Hellas) Corinth Refineries is potentially over or undervalued by checking out our comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, insider transactions and financial health.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. 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.