To find a multi-bagger stock, what are the underlying trends we should look for in a business? Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. However, after investigating Makarony Polskie (WSE:MAK), we don't think it's current trends fit the mold of a multi-bagger.
What is Return On Capital Employed (ROCE)?
For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. The formula for this calculation on Makarony Polskie is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.078 = zł10.0m ÷ (zł184m - zł57m) (Based on the trailing twelve months to September 2020).
Therefore, Makarony Polskie has an ROCE of 7.8%. Ultimately, that's a low return and it under-performs the Food industry average of 10%.
See our latest analysis for Makarony Polskie
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'd like to look at how Makarony Polskie has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.
What Can We Tell From Makarony Polskie's ROCE Trend?
There are better returns on capital out there than what we're seeing at Makarony Polskie. The company has consistently earned 7.8% for the last five years, and the capital employed within the business has risen 32% in that time. This poor ROCE doesn't inspire confidence right now, and with the increase in capital employed, it's evident that the business isn't deploying the funds into high return investments.
In Conclusion...
In summary, Makarony Polskie has simply been reinvesting capital and generating the same low rate of return as before. And with the stock having returned a mere 25% in the last five years to shareholders, you could argue that they're aware of these lackluster trends. As a result, if you're hunting for a multi-bagger, we think you'd have more luck elsewhere.
Makarony Polskie does have some risks, we noticed 5 warning signs (and 1 which is a bit concerning) we think you should know about.
While Makarony Polskie 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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About WSE:MAK
Makarony Polskie
Engages in the manufacture and sale of pastas for various consumers in Poland.
Flawless balance sheet with solid track record and pays a dividend.
