Return Trends At ENAV (BIT:ENAV) Aren't Appealing

If you're looking for a multi-bagger, there's a few things to keep an eye out for. Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's 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. Although, when we looked at ENAV (BIT:ENAV), it didn't seem to tick all of these boxes.

What Is Return On Capital Employed (ROCE)?

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. The formula for this calculation on ENAV is:

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

0.082 = €136m ÷ (€2.4b - €764m) (Based on the trailing twelve months to December 2022).

Thus, ENAV has an ROCE of 8.2%. In absolute terms, that's a low return but it's around the Infrastructure industry average of 7.4%.

Check out our latest analysis for ENAV

Above you can see how the current ROCE for ENAV 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 ENAV.

The Trend Of ROCE

There hasn't been much to report for ENAV's returns and its level of capital employed because both metrics have been steady for the past five years. This tells us the company isn't reinvesting in itself, so it's plausible that it's past the growth phase. With that in mind, unless investment picks up again in the future, we wouldn't expect ENAV to be a multi-bagger going forward. That probably explains why ENAV has been paying out 85% of its earnings as dividends to shareholders. If the company is in fact lacking growth opportunities, that's one of the viable alternatives for the money.

On another note, while the change in ROCE trend might not scream for attention, it's interesting that the current liabilities have actually gone up over the last five years. This is intriguing because if current liabilities hadn't increased to 32% of total assets, this reported ROCE would probably be less than8.2% because total capital employed would be higher.The 8.2% ROCE could be even lower if current liabilities weren't 32% of total assets, because the the formula would show a larger base of total capital employed. With that in mind, just be wary if this ratio increases in the future, because if it gets particularly high, this brings with it some new elements of risk.

What We Can Learn From ENAV's ROCE

In summary, ENAV isn't compounding its earnings but is generating stable returns on the same amount of capital employed. And investors may be recognizing these trends since the stock has only returned a total of 8.0% to shareholders over the last five years. Therefore, if you're looking for a multi-bagger, we'd propose looking at other options.

On a final note, we've found 1 warning sign for ENAV that we think you should be aware of.

While ENAV 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.