PannErgy Nyrt's (BUSE:PANNERGY) Returns On Capital Are Heading Higher

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing amount 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. With that in mind, we've noticed some promising trends at PannErgy Nyrt (BUSE:PANNERGY) so let's look a bit deeper.

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. Analysts use this formula to calculate it for PannErgy Nyrt:

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

0.044 = Ft1.1b ÷ (Ft27b - Ft2.5b) (Based on the trailing twelve months to December 2020).

So, PannErgy Nyrt has an ROCE of 4.4%. Ultimately, that's a low return and it under-performs the Renewable Energy industry average of 5.5%.

Check out our latest analysis for PannErgy Nyrt

Historical performance is a great place to start when researching a stock so above you can see the gauge for PannErgy Nyrt's ROCE against it's prior returns. If you'd like to look at how PannErgy Nyrt has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.

The Trend Of ROCE

PannErgy Nyrt has broken into the black (profitability) and we're sure it's a sight for sore eyes. The company now earns 4.4% on its capital, because five years ago it was incurring losses. Interestingly, the capital employed by the business has remained relatively flat, so these higher returns are either from prior investments paying off or increased efficiencies. That being said, while an increase in efficiency is no doubt appealing, it'd be helpful to know if the company does have any investment plans going forward. So if you're looking for high growth, you'll want to see a business's capital employed also increasing.

In Conclusion...

In summary, we're delighted to see that PannErgy Nyrt has been able to increase efficiencies and earn higher rates of return on the same amount of capital. And a remarkable 127% total return over the last five years tells us that investors are expecting more good things to come in the future. In light of that, we think it's worth looking further into this stock because if PannErgy Nyrt can keep these trends up, it could have a bright future ahead.

If you want to know some of the risks facing PannErgy Nyrt we've found 3 warning signs (1 makes us a bit uncomfortable!) that you should be aware of before investing here.

While PannErgy Nyrt 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. 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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