Stock Analysis

I.Kloukinas-I.Lappas' (ATH:KLM) Returns On Capital Not Reflecting Well On The Business

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ATSE:KLM
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To find a multi-bagger stock, what are the underlying trends we should look for in a business? Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. Having said that, from a first glance at I.Kloukinas-I.Lappas (ATH:KLM) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper look.

Understanding 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 I.Kloukinas-I.Lappas:

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

0.012 = €991k ÷ (€93m - €8.3m) (Based on the trailing twelve months to June 2021).

So, I.Kloukinas-I.Lappas has an ROCE of 1.2%. Ultimately, that's a low return and it under-performs the Specialty Retail industry average of 5.4%.

See our latest analysis for I.Kloukinas-I.Lappas

roce
ATSE:KLM Return on Capital Employed March 16th 2022

While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you'd like to look at how I.Kloukinas-I.Lappas 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 I.Kloukinas-I.Lappas' ROCE Trend?

In terms of I.Kloukinas-I.Lappas' historical ROCE movements, the trend isn't fantastic. Over the last five years, returns on capital have decreased to 1.2% from 2.9% five years ago. On the other hand, the company has been employing more capital without a corresponding improvement in sales in the last year, which could suggest these investments are longer term plays. It may take some time before the company starts to see any change in earnings from these investments.

What We Can Learn From I.Kloukinas-I.Lappas' ROCE

In summary, I.Kloukinas-I.Lappas is reinvesting funds back into the business for growth but unfortunately it looks like sales haven't increased much just yet. Since the stock has gained an impressive 82% over the last five years, investors must think there's better things to come. Ultimately, if the underlying trends persist, we wouldn't hold our breath on it being a multi-bagger going forward.

If you'd like to know more about I.Kloukinas-I.Lappas, we've spotted 3 warning signs, and 1 of them is significant.

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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Find out whether I.Kloukinas-I.Lappas 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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About ATSE:KLM

I.Kloukinas-I.Lappas

I.Kloukinas-I.Lappas S.A. engages in the commerce and construction businesses in Greece.

The Snowflake is a visual investment summary with the score of each axis being calculated by 6 checks in 5 areas.

Analysis AreaScore (0-6)
Valuation0
Future Growth0
Past Performance1
Financial Health4
Dividends2

Read more about these checks in the individual report sections or in our analysis model.

Adequate balance sheet unattractive dividend payer.