The Return Trends At E. Pairis (ATH:PAIR) Look Promising

If you're looking for a multi-bagger, there's a few things to keep an eye out for. In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. So when we looked at E. Pairis (ATH:PAIR) and its trend of ROCE, we really liked what we saw.

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. Analysts use this formula to calculate it for E. Pairis:

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

0.076 = €788k ÷ (€16m - €5.5m) (Based on the trailing twelve months to December 2020).

Therefore, E. Pairis has an ROCE of 7.6%. Ultimately, that's a low return and it under-performs the Packaging industry average of 11%.

View our latest analysis for E. Pairis

Historical performance is a great place to start when researching a stock so above you can see the gauge for E. Pairis' ROCE against it's prior returns. If you want to delve into the historical earnings, revenue and cash flow of E. Pairis, check out these free graphs here.

The Trend Of ROCE

We're glad to see that ROCE is heading in the right direction, even if it is still low at the moment. Over the last five years, returns on capital employed have risen substantially to 7.6%. Basically the business is earning more per dollar of capital invested and in addition to that, 115% 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.

In another part of our analysis, we noticed that the company's ratio of current liabilities to total assets decreased to 35%, which broadly means the business is relying less on its suppliers or short-term creditors to fund its operations. So this improvement in ROCE has come from the business' underlying economics, which is great to see.

The Bottom Line On E. Pairis' ROCE

A company that is growing its returns on capital and can consistently reinvest in itself is a highly sought after trait, and that's what E. Pairis has. Since the stock has returned a staggering 402% to shareholders over the last five years, it looks like investors are recognizing these changes. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.

E. Pairis does have some risks, we noticed 3 warning signs (and 2 which are potentially serious) we think you should know about.

While E. Pairis 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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This article by Simply Wall St is general in nature. 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.
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