Will the Promising Trends At Piraeus Port Authority (ATH:PPA) Continue?

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look 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 on that note, Piraeus Port Authority (ATH:PPA) looks quite promising in regards to its trends of return on capital.

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 Piraeus Port Authority:

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

0.11 = €51m ÷ (€479m - €32m) (Based on the trailing twelve months to June 2020).

Therefore, Piraeus Port Authority has an ROCE of 11%. In absolute terms, that's a satisfactory return, but compared to the Infrastructure industry average of 6.2% it's much better.

Check out our latest analysis for Piraeus Port Authority

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 Piraeus Port Authority, check out these free graphs here.

What The Trend Of ROCE Can Tell Us

The trends we've noticed at Piraeus Port Authority are quite reassuring. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 11%. The amount of capital employed has increased too, by 26%. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, a combination that's common among multi-baggers.

The Key Takeaway

To sum it up, Piraeus Port Authority has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. And investors seem to expect more of this going forward, since the stock has rewarded shareholders with a 56% return over the last five years. In light of that, we think it's worth looking further into this stock because if Piraeus Port Authority can keep these trends up, it could have a bright future ahead.

Like most companies, Piraeus Port Authority does come with some risks, and we've found 1 warning sign that you should be aware of.

While Piraeus Port Authority 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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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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