Investors Met With Slowing Returns on Capital At Società Editoriale Il Fatto (BIT:SEIF)

To find a multi-bagger stock, what are the underlying trends we should look for in a business? Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. 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 Società Editoriale Il Fatto (BIT:SEIF), 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. Analysts use this formula to calculate it for Società Editoriale Il Fatto:

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

0.082 = €965k ÷ (€21m - €9.2m) (Based on the trailing twelve months to June 2021).

Thus, Società Editoriale Il Fatto has an ROCE of 8.2%. Ultimately, that's a low return and it under-performs the Media industry average of 13%.

Check out our latest analysis for Società Editoriale Il Fatto

Above you can see how the current ROCE for Società Editoriale Il Fatto 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 Società Editoriale Il Fatto.

What Can We Tell From Società Editoriale Il Fatto's ROCE Trend?

Things have been pretty stable at Società Editoriale Il Fatto, with its capital employed and returns on that capital staying somewhat the same for the last four years. Businesses with these traits tend to be mature and steady operations because they're past the growth phase. With that in mind, unless investment picks up again in the future, we wouldn't expect Società Editoriale Il Fatto to be a multi-bagger going forward.

On a side note, Società Editoriale Il Fatto's current liabilities are still rather high at 44% of total assets. This effectively means that suppliers (or short-term creditors) are funding a large portion of the business, so just be aware that this can introduce some elements of risk. Ideally we'd like to see this reduce as that would mean fewer obligations bearing risks.

The Bottom Line

In summary, Società Editoriale Il Fatto isn't compounding its earnings but is generating stable returns on the same amount of capital employed. And in the last year, the stock has given away 13% so the market doesn't look too hopeful on these trends strengthening any time soon. On the whole, we aren't too inspired by the underlying trends and we think there may be better chances of finding a multi-bagger elsewhere.

Società Editoriale Il Fatto does have some risks though, and we've spotted 2 warning signs for Società Editoriale Il Fatto that you might be interested in.

While Società Editoriale Il Fatto 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. 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.