Stock Analysis

The Returns At Atlantic Grupa d.d (ZGSE:ATGR) Aren't Growing

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ZGSE:ATGR
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If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out for. Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. However, after briefly looking over the numbers, we don't think Atlantic Grupa d.d (ZGSE:ATGR) has the makings of a multi-bagger going forward, but let's have a look at why that may be.

What is Return On Capital Employed (ROCE)?

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 Atlantic Grupa d.d, this is the formula:

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

0.13 = Kn486m ÷ (Kn5.6b - Kn1.7b) (Based on the trailing twelve months to March 2021).

So, Atlantic Grupa d.d has an ROCE of 13%. In absolute terms, that's a satisfactory return, but compared to the Food industry average of 7.4% it's much better.

See our latest analysis for Atlantic Grupa d.d

roce
ZGSE:ATGR Return on Capital Employed May 20th 2021

Above you can see how the current ROCE for Atlantic 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 to see what analysts are forecasting going forward, you should check out our free report for Atlantic Grupa d.d.

The Trend Of ROCE

Things have been pretty stable at Atlantic Grupa d.d, with its capital employed and returns on that capital staying somewhat the same for the last 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. With that in mind, unless investment picks up again in the future, we wouldn't expect Atlantic Grupa d.d to be a multi-bagger going forward.

What We Can Learn From Atlantic Grupa d.d's ROCE

In summary, Atlantic Grupa d.d isn't compounding its earnings but is generating stable returns on the same amount of capital employed. Yet to long term shareholders the stock has gifted them an incredible 108% return in the last five years, so the market appears to be rosy about its future. But if the trajectory of these underlying trends continue, we think the likelihood of it being a multi-bagger from here isn't high.

On a final note, we found 2 warning signs for Atlantic Grupa d.d (1 doesn't sit too well with us) you should be aware of.

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About ZGSE:ATGR

Atlantic Grupa d.d

Atlantic Grupa d.d., together with its subsidiaries, engages in the research, development, production, and distribution fast moving consumer goods in Southeast Europe, the European markets, Russia, and the Commonwealth of Independent States.

Flawless balance sheet second-rate dividend payer.