Will Notorious Pictures (BIT:NPI) Multiply In Value Going Forward?

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. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. However, after investigating Notorious Pictures (BIT:NPI), we don't think it's current trends fit the mold of a multi-bagger.

Understanding 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 Notorious Pictures, this is the formula:

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

0.029 = €1.3m ÷ (€62m - €17m) (Based on the trailing twelve months to June 2020).

Therefore, Notorious Pictures has an ROCE of 2.9%. In absolute terms, that's a low return and it also under-performs the Entertainment industry average of 11%.

See our latest analysis for Notorious Pictures

Above you can see how the current ROCE for Notorious Pictures 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 Notorious Pictures.

So How Is Notorious Pictures' ROCE Trending?

On the surface, the trend of ROCE at Notorious Pictures doesn't inspire confidence. Over the last five years, returns on capital have decreased to 2.9% from 37% five years ago. On the other hand, the company has been employing more capital without a corresponding improvement in sales in the last year, which could suggest these investments are longer term plays. It may take some time before the company starts to see any change in earnings from these investments.

Our Take On Notorious Pictures' ROCE

To conclude, we've found that Notorious Pictures is reinvesting in the business, but returns have been falling. Although the market must be expecting these trends to improve because the stock has gained 47% over the last five years. But if the trajectory of these underlying trends continue, we think the likelihood of it being a multi-bagger from here isn't high.

If you want to continue researching Notorious Pictures, you might be interested to know about the 3 warning signs that our analysis has discovered.

While Notorious Pictures 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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