The Return Trends At Pepco Group (WSE:PCO) Look Promising

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look 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. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. So when we looked at Pepco Group (WSE:PCO) and its trend of ROCE, we really liked what we saw.

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. The formula for this calculation on Pepco Group is:

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

0.12 = €301m ÷ (€3.5b - €1.0b) (Based on the trailing twelve months to March 2022).

Therefore, Pepco Group has an ROCE of 12%. In absolute terms, that's a pretty standard return but compared to the Multiline Retail industry average it falls behind.

See our latest analysis for Pepco Group

In the above chart we have measured Pepco Group's prior ROCE against its prior performance, but the future is arguably more important. If you're interested, you can view the analysts predictions in our free report on analyst forecasts for the company.

So How Is Pepco Group's ROCE Trending?

Investors would be pleased with what's happening at Pepco Group. The data shows that returns on capital have increased substantially over the last five years to 12%. The company is effectively making more money per dollar of capital used, and it's worth noting that the amount of capital has increased too, by 252%. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, a combination that's common among multi-baggers.

The Bottom Line On Pepco Group's ROCE

To sum it up, Pepco Group has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. And since the stock has fallen 32% over the last year, there might be an opportunity here. So researching this company further and determining whether or not these trends will continue seems justified.

While Pepco Group looks impressive, no company is worth an infinite price. The intrinsic value infographic in our free research report helps visualize whether PCO is currently trading for a fair price.

While Pepco Group 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. 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.