Stock Analysis

Motor Oil (Hellas) Corinth Refineries' (ATH:MOH) Returns On Capital Not Reflecting Well On The Business

ATSE:MOH
Source: Shutterstock

To find a multi-bagger stock, what are the underlying trends we should look for in a business? Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base 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. Although, when we looked at Motor Oil (Hellas) Corinth Refineries (ATH:MOH), it didn't seem to tick all of these boxes.

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. The formula for this calculation on Motor Oil (Hellas) Corinth Refineries is:

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

0.099 = €322m ÷ (€4.7b - €1.5b) (Based on the trailing twelve months to September 2021).

Therefore, Motor Oil (Hellas) Corinth Refineries has an ROCE of 9.9%. In absolute terms, that's a low return but it's around the Oil and Gas industry average of 9.3%.

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

roce
ATSE:MOH Return on Capital Employed March 3rd 2022

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, you can check out the forecasts from the analysts covering Motor Oil (Hellas) Corinth Refineries here for free.

So How Is Motor Oil (Hellas) Corinth Refineries' ROCE Trending?

When we looked at the ROCE trend at Motor Oil (Hellas) Corinth Refineries, we didn't gain much confidence. Over the last five years, returns on capital have decreased to 9.9% from 21% five years ago. However, given capital employed and revenue have both increased it appears that the business is currently pursuing growth, at the consequence of short term returns. If these investments prove successful, this can bode very well for long term stock performance.

What We Can Learn From Motor Oil (Hellas) Corinth Refineries' ROCE

Even though returns on capital have fallen in the short term, we find it promising that revenue and capital employed have both increased for Motor Oil (Hellas) Corinth Refineries. In light of this, the stock has only gained 15% over the last five years. Therefore we'd recommend looking further into this stock to confirm if it has the makings of a good investment.

Motor Oil (Hellas) Corinth Refineries does come with some risks though, we found 2 warning signs in our investment analysis, and 1 of those shouldn't be ignored...

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive 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.

View the Free Analysis

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

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.