Stock Analysis

Plaisio Computers' (ATH:PLAIS) Returns On Capital Not Reflecting Well On The Business

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ATSE:PLAIS
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To find a multi-bagger stock, what are the underlying trends we should look for in a business? Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's amount 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. In light of that, when we looked at Plaisio Computers (ATH:PLAIS) and its ROCE trend, we weren't exactly thrilled.

What is Return On Capital Employed (ROCE)?

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 Plaisio Computers:

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

0.042 = €6.3m ÷ (€229m - €78m) (Based on the trailing twelve months to December 2020).

Thus, Plaisio Computers has an ROCE of 4.2%. Ultimately, that's a low return and it under-performs the Specialty Retail industry average of 10%.

See our latest analysis for Plaisio Computers

roce
ATSE:PLAIS Return on Capital Employed June 10th 2021

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 want to delve into the historical earnings, revenue and cash flow of Plaisio Computers, check out these free graphs here.

What The Trend Of ROCE Can Tell Us

When we looked at the ROCE trend at Plaisio Computers, we didn't gain much confidence. Over the last five years, returns on capital have decreased to 4.2% from 11% 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 Plaisio Computers' ROCE

In summary, despite lower returns in the short term, we're encouraged to see that Plaisio Computers is reinvesting for growth and has higher sales as a result. These trends are starting to be recognized by investors since the stock has delivered a 7.9% gain to shareholders who've held over the last five years. So this stock may still be an appealing investment opportunity, if other fundamentals prove to be sound.

If you want to continue researching Plaisio Computers, you might be interested to know about the 1 warning sign that our analysis has discovered.

While Plaisio Computers isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

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