Grupa Kapitalowa IMMOBILE's (WSE:GKI) Returns Have Hit A Wall

If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out for. 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. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. However, after investigating Grupa Kapitalowa IMMOBILE (WSE:GKI), we don't think it's current trends fit the mold of a multi-bagger.

Trump has pledged to "unleash" American oil and gas and these 15 US stocks have developments that are poised to benefit.

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. To calculate this metric for Grupa Kapitalowa IMMOBILE, this is the formula:

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

0.033 = zł17m ÷ (zł951m - zł451m) (Based on the trailing twelve months to September 2024).

Therefore, Grupa Kapitalowa IMMOBILE has an ROCE of 3.3%. In absolute terms, that's a low return and it also under-performs the Industrials industry average of 6.4%.

Check out our latest analysis for Grupa Kapitalowa IMMOBILE

While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you're interested in investigating Grupa Kapitalowa IMMOBILE's past further, check out this free graph covering Grupa Kapitalowa IMMOBILE's past earnings, revenue and cash flow.

How Are Returns Trending?

In terms of Grupa Kapitalowa IMMOBILE's historical ROCE trend, it doesn't exactly demand attention. The company has employed 23% more capital in the last five years, and the returns on that capital have remained stable at 3.3%. Given the company has increased the amount of capital employed, it appears the investments that have been made simply don't provide a high return on capital.

On a side note, Grupa Kapitalowa IMMOBILE's current liabilities are still rather high at 47% of total assets. This can bring about some risks because the company is basically operating with a rather large reliance on its suppliers or other sorts of short-term creditors. While it's not necessarily a bad thing, it can be beneficial if this ratio is lower.

Our Take On Grupa Kapitalowa IMMOBILE's ROCE

As we've seen above, Grupa Kapitalowa IMMOBILE's returns on capital haven't increased but it is reinvesting in the business. Unsurprisingly, the stock has only gained 16% over the last five years, which potentially indicates that investors are accounting for this going forward. So if you're looking for a multi-bagger, the underlying trends indicate you may have better chances elsewhere.

One more thing: We've identified 4 warning signs with Grupa Kapitalowa IMMOBILE (at least 2 which make us uncomfortable) , and understanding them would certainly be useful.

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high returns on equity.

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

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.