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. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. Having said that, from a first glance at Ascopiave (BIT:ASC) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper look.
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 Ascopiave is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.03 = €32m ÷ (€1.3b - €239m) (Based on the trailing twelve months to June 2021).
So, Ascopiave has an ROCE of 3.0%. Ultimately, that's a low return and it under-performs the Gas Utilities industry average of 6.8%.
Check out our latest analysis for Ascopiave
Above you can see how the current ROCE for Ascopiave compares to its prior returns on capital, but there's only so much you can tell from the past. If you're interested, you can view the analysts predictions in our free report on analyst forecasts for the company.
So How Is Ascopiave's ROCE Trending?
On the surface, the trend of ROCE at Ascopiave doesn't inspire confidence. To be more specific, ROCE has fallen from 13% over the last five years. However it looks like Ascopiave might be reinvesting for long term growth because while capital employed has increased, the company's sales haven't changed much in the last 12 months. It may take some time before the company starts to see any change in earnings from these investments.
The Key Takeaway
To conclude, we've found that Ascopiave 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 83% over the last five years. However, unless these underlying trends turn more positive, we wouldn't get our hopes up too high.
Ascopiave does come with some risks though, we found 2 warning signs in our investment analysis, and 1 of those shouldn't be ignored...
While Ascopiave 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.
New: Manage All Your Stock Portfolios in One Place
We've created the ultimate portfolio companion for stock investors, and it's free.
• Connect an unlimited number of Portfolios and see your total in one currency
• Be alerted to new Warning Signs or Risks via email or mobile
• Track the Fair Value of your stocks
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.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
About BIT:ASC
Solid track record and good value.
