Kordellos Ch. Bros (ATH:KORDE) Has Some Way To Go To Become A Multi-Bagger

What trends should we look for it we want to identify stocks that can multiply in value over the long term? Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. However, after investigating Kordellos Ch. Bros (ATH:KORDE), we don't think it's current trends fit the mold of a multi-bagger.

Return On Capital Employed (ROCE): What is it?

For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. Analysts use this formula to calculate it for Kordellos Ch. Bros:

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

0.035 = €1.6m ÷ (€51m - €6.0m) (Based on the trailing twelve months to December 2020).

Thus, Kordellos Ch. Bros has an ROCE of 3.5%. Even though it's in line with the industry average of 3.5%, it's still a low return by itself.

See our latest analysis for Kordellos Ch. Bros

Historical performance is a great place to start when researching a stock so above you can see the gauge for Kordellos Ch. Bros' ROCE against it's prior returns. If you'd like to look at how Kordellos Ch. Bros 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 are better returns on capital out there than what we're seeing at Kordellos Ch. Bros. The company has consistently earned 3.5% for the last five years, and the capital employed within the business has risen 75% in that time. Given the company has increased the amount of capital employed, it appears the investments that have been made simply don't provide a high return on capital.

On a side note, Kordellos Ch. Bros has done well to reduce current liabilities to 12% of total assets over the last five years. This can eliminate some of the risks inherent in the operations because the business has less outstanding obligations to their suppliers and or short-term creditors than they did previously.

What We Can Learn From Kordellos Ch. Bros' ROCE

In summary, Kordellos Ch. Bros has simply been reinvesting capital and generating the same low rate of return as before. Although the market must be expecting these trends to improve because the stock has gained 66% over the last five years. However, unless these underlying trends turn more positive, we wouldn't get our hopes up too high.

If you want to know some of the risks facing Kordellos Ch. Bros we've found 3 warning signs (1 is concerning!) that you should be aware of before investing here.

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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