Investors Met With Slowing Returns on Capital At Adris grupa d. d (ZGSE:ADRS)

To find a multi-bagger stock, what are the underlying trends we should look for in a business? Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. In light of that, when we looked at Adris grupa d. d (ZGSE:ADRS) and its ROCE trend, we weren't exactly thrilled.

Return On Capital Employed (ROCE): What Is It?

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. To calculate this metric for Adris grupa d. d, this is the formula:

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

0.037 = €89m ÷ (€2.8b - €418m) (Based on the trailing twelve months to March 2023).

Thus, Adris grupa d. d has an ROCE of 3.7%. In absolute terms, that's a low return and it also under-performs the Industrials industry average of 7.9%.

Check out our latest analysis for Adris grupa d. d

Above you can see how the current ROCE for Adris grupa d. d compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like, you can check out the forecasts from the analysts covering Adris grupa d. d here for free.

What Does the ROCE Trend For Adris grupa d. d Tell Us?

There hasn't been much to report for Adris grupa d. d's returns and its level of capital employed because both metrics have been steady for the past five years. It's not uncommon to see this when looking at a mature and stable business that isn't re-investing its earnings because it has likely passed that phase of the business cycle. So don't be surprised if Adris grupa d. d doesn't end up being a multi-bagger in a few years time. With fewer investment opportunities, it makes sense that Adris grupa d. d has been paying out a decent 52% of its earnings to shareholders. Unless businesses have highly compelling growth opportunities, they'll typically return some money to shareholders.

The Bottom Line On Adris grupa d. d's ROCE

In a nutshell, Adris grupa d. d has been trudging along with the same returns from the same amount of capital over the last five years. And with the stock having returned a mere 36% in the last five years to shareholders, you could argue that they're aware of these lackluster trends. Therefore, if you're looking for a multi-bagger, we'd propose looking at other options.

One more thing: We've identified 2 warning signs with Adris grupa d. d (at least 1 which is a bit concerning) , and understanding these would certainly be useful.

While Adris grupa d. d 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. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. 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.