Is Italian Exhibition Group (BIT:IEG) Likely To Turn Things Around?

What trends should we look for it we want to identify stocks that can multiply in value over the long term? 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. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. However, after investigating Italian Exhibition Group (BIT:IEG), we don't think it's current trends fit the mold of a multi-bagger.

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. The formula for this calculation on Italian Exhibition Group is:

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

0.0064 = €1.6m ÷ (€320m - €67m) (Based on the trailing twelve months to September 2020).

So, Italian Exhibition Group has an ROCE of 0.6%. In absolute terms, that's a low return and it also under-performs the Media industry average of 8.0%.

View our latest analysis for Italian Exhibition Group

In the above chart we have measured Italian Exhibition Group's prior ROCE against its prior performance, but the future is arguably more important. If you'd like to see what analysts are forecasting going forward, you should check out our free report for Italian Exhibition Group.

What The Trend Of ROCE Can Tell Us

When we looked at the ROCE trend at Italian Exhibition Group, we didn't gain much confidence. Around four years ago the returns on capital were 5.8%, but since then they've fallen to 0.6%. Given the business is employing more capital while revenue has slipped, this is a bit concerning. This could mean that the business is losing its competitive advantage or market share, because while more money is being put into ventures, it's actually producing a lower return - "less bang for their buck" per se.

In Conclusion...

In summary, we're somewhat concerned by Italian Exhibition Group's diminishing returns on increasing amounts of capital. It should come as no surprise then that the stock has fallen 41% over the last year, so it looks like investors are recognizing these changes. Unless there is a shift to a more positive trajectory in these metrics, we would look elsewhere.

One final note, you should learn about the 4 warning signs we've spotted with Italian Exhibition Group (including 1 which is potentially serious) .

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

When trading Italian Exhibition Group or any other investment, use the platform considered by many to be the Professional's Gateway to the Worlds Market, Interactive Brokers. You get the lowest-cost* trading on stocks, options, futures, forex, bonds and funds worldwide from a single integrated account. Promoted

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.
^*Interactive Brokers Rated Lowest Cost Broker by StockBrokers.com Annual Online Review 2020

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.