The Trends At Grupa Azoty (WSE:ATT) That You Should Know About

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. Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. However, after briefly looking over the numbers, we don't think Grupa Azoty (WSE:ATT) has the makings of a multi-bagger going forward, but let's have a look at why that may be.

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

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

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

0.041 = zł527m ÷ (zł16b - zł3.6b) (Based on the trailing twelve months to September 2020).

Thus, Grupa Azoty has an ROCE of 4.1%. Ultimately, that's a low return and it under-performs the Chemicals industry average of 7.8%.

View our latest analysis for Grupa Azoty

Above you can see how the current ROCE for Grupa Azoty compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like to see what analysts are forecasting going forward, you should check out our free report for Grupa Azoty.

What The Trend Of ROCE Can Tell Us

In terms of Grupa Azoty's historical ROCE movements, the trend isn't fantastic. To be more specific, ROCE has fallen from 8.1% over the last five years. Meanwhile, the business is utilizing more capital but this hasn't moved the needle much in terms of sales in the past 12 months, so this could reflect longer term investments. It's worth keeping an eye on the company's earnings from here on to see if these investments do end up contributing to the bottom line.

The Bottom Line On Grupa Azoty's ROCE

In summary, Grupa Azoty is reinvesting funds back into the business for growth but unfortunately it looks like sales haven't increased much just yet. Since the stock has declined 68% over the last five years, investors may not be too optimistic on this trend improving either. Therefore based on the analysis done in this article, we don't think Grupa Azoty has the makings of a multi-bagger.

One more thing, we've spotted 3 warning signs facing Grupa Azoty that you might find interesting.

While Grupa Azoty 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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