We're Watching These Trends At Grupa Kapitalowa IMMOBILE (WSE:GKI)

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. 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 Grupa Kapitalowa IMMOBILE (WSE:GKI), we don't think it's current trends fit the mold of a multi-bagger.

What is Return On Capital Employed (ROCE)?

For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. Analysts use this formula to calculate it for Grupa Kapitalowa IMMOBILE:

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

0.031 = zł13m ÷ (zł692m - zł258m) (Based on the trailing twelve months to June 2020).

Thus, Grupa Kapitalowa IMMOBILE has an ROCE of 3.1%. In absolute terms, that's a low return and it also under-performs the Industrials industry average of 5.6%.

View our latest analysis for Grupa Kapitalowa IMMOBILE

Historical performance is a great place to start when researching a stock so above you can see the gauge for Grupa Kapitalowa IMMOBILE's ROCE against it's prior returns. If you want to delve into the historical earnings, revenue and cash flow of Grupa Kapitalowa IMMOBILE, check out these free graphs here.

What Can We Tell From Grupa Kapitalowa IMMOBILE's ROCE Trend?

On the surface, the trend of ROCE at Grupa Kapitalowa IMMOBILE doesn't inspire confidence. To be more specific, ROCE has fallen from 4.8% over the last five years. However, given capital employed and revenue have both increased it appears that the business is currently pursuing growth, at the consequence of short term returns. If these investments prove successful, this can bode very well for long term stock performance.

On a side note, Grupa Kapitalowa IMMOBILE's current liabilities have increased over the last five years to 37% of total assets, effectively distorting the ROCE to some degree. Without this increase, it's likely that ROCE would be even lower than 3.1%. Keep an eye on this ratio, because the business could encounter some new risks if this metric gets too high.

In Conclusion...

Even though returns on capital have fallen in the short term, we find it promising that revenue and capital employed have both increased for Grupa Kapitalowa IMMOBILE. However, total returns to shareholders over the last five years have been flat, which could indicate these growth trends potentially aren't accounted for yet by investors. As a result, we'd recommend researching this stock further to uncover what other fundamentals of the business can show us.

Grupa Kapitalowa IMMOBILE does have some risks, we noticed 3 warning signs (and 2 which are significant) we think you should know about.

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive returns on equity.

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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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