Polimex-Mostostal (WSE:PXM) Has More To Do To Multiply In Value Going Forward

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. Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base 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 Polimex-Mostostal (WSE:PXM) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper look.

Return On Capital Employed (ROCE): What is it?

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 Polimex-Mostostal:

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

0.095 = zł96m ÷ (zł2.1b - zł1.1b) (Based on the trailing twelve months to March 2021).

Thus, Polimex-Mostostal has an ROCE of 9.5%. On its own, that's a low figure but it's around the 12% average generated by the Construction industry.

View our latest analysis for Polimex-Mostostal

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 want to delve into the historical earnings, revenue and cash flow of Polimex-Mostostal, check out these free graphs here.

How Are Returns Trending?

We've noticed that although returns on capital are flat over the last five years, the amount of capital employed in the business has fallen 20% in that same period. When a company effectively decreases its assets base, it's not usually a sign to be optimistic on that company. In addition to that, since the ROCE doesn't scream "quality" at 9.5%, it's hard to get excited about these developments.

Another thing to note, Polimex-Mostostal has a high ratio of current liabilities to total assets of 53%. 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.

In Conclusion...

Overall, we're not ecstatic to see Polimex-Mostostal reducing the amount of capital it employs in the business. And investors may be recognizing these trends since the stock has only returned a total of 33% to shareholders over the last five years. Therefore, if you're looking for a multi-bagger, we'd propose looking at other options.

While Polimex-Mostostal doesn't shine too bright in this respect, it's still worth seeing if the company is trading at attractive prices. You can find that out with our FREE intrinsic value estimation on our platform.

While Polimex-Mostostal 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.

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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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