Stalexport Autostrady (WSE:STX) Will Be Looking To Turn Around Its Returns

When it comes to investing, there are some useful financial metrics that can warn us when a business is potentially in trouble. Businesses in decline often have two underlying trends, firstly, a declining return on capital employed (ROCE) and a declining base of capital employed. This combination can tell you that not only is the company investing less, it's earning less on what it does invest. And from a first read, things don't look too good at Stalexport Autostrady (WSE:STX), so let's see why.

What is Return On Capital Employed (ROCE)?

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 Stalexport Autostrady is:

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

0.085 = zł97m ÷ (zł1.5b - zł320m) (Based on the trailing twelve months to March 2021).

Therefore, Stalexport Autostrady has an ROCE of 8.5%. In absolute terms, that's a low return but it's around the Infrastructure industry average of 7.6%.

See our latest analysis for Stalexport Autostrady

Historical performance is a great place to start when researching a stock so above you can see the gauge for Stalexport Autostrady's ROCE against it's prior returns. If you're interested in investigating Stalexport Autostrady's past further, check out this free graph of past earnings, revenue and cash flow.

What Can We Tell From Stalexport Autostrady's ROCE Trend?

In terms of Stalexport Autostrady's historical ROCE movements, the trend doesn't inspire confidence. About five years ago, returns on capital were 16%, however they're now substantially lower than that as we saw above. And on the capital employed front, the business is utilizing roughly the same amount of capital as it was back then. Since returns are falling and the business has the same amount of assets employed, this can suggest it's a mature business that hasn't had much growth in the last five years. So because these trends aren't typically conducive to creating a multi-bagger, we wouldn't hold our breath on Stalexport Autostrady becoming one if things continue as they have.

In Conclusion...

In the end, the trend of lower returns on the same amount of capital isn't typically an indication that we're looking at a growth stock. Yet despite these concerning fundamentals, the stock has performed strongly with a 64% return over the last five years, so investors appear very optimistic. Regardless, we don't feel too comfortable with the fundamentals so we'd be steering clear of this stock for now.

One more thing, we've spotted 1 warning sign facing Stalexport Autostrady that you might find interesting.

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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