Here’s What’s Happening With Returns At Vista Alegre Atlantis SGPS (ELI:VAF)

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. Speaking of which, we noticed some great changes in Vista Alegre Atlantis SGPS' (ELI:VAF) returns on capital, so let's have a look.

Understanding 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. To calculate this metric for Vista Alegre Atlantis SGPS, this is the formula:

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

0.031 = €5.2m ÷ (€238m - €69m) (Based on the trailing twelve months to September 2020).

Thus, Vista Alegre Atlantis SGPS has an ROCE of 3.1%. In absolute terms, that's a low return and it also under-performs the Consumer Durables industry average of 8.7%.

View our latest analysis for Vista Alegre Atlantis SGPS

Above you can see how the current ROCE for Vista Alegre Atlantis SGPS compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like, you can check out the forecasts from the analysts covering Vista Alegre Atlantis SGPS here for free.

What Does the ROCE Trend For Vista Alegre Atlantis SGPS Tell Us?

Vista Alegre Atlantis SGPS has recently broken into profitability so their prior investments seem to be paying off. About five years ago the company was generating losses but things have turned around because it's now earning 3.1% on its capital. Not only that, but the company is utilizing 26% more capital than before, but that's to be expected from a company trying to break into profitability. This can tell us that the company has plenty of reinvestment opportunities that are able to generate higher returns.

What We Can Learn From Vista Alegre Atlantis SGPS' ROCE

Long story short, we're delighted to see that Vista Alegre Atlantis SGPS' reinvestment activities have paid off and the company is now profitable. Considering the stock has delivered 34% to its stockholders over the last five years, it may be fair to think that investors aren't fully aware of the promising trends yet. Given that, we'd look further into this stock in case it has more traits that could make it multiply in the long term.

Vista Alegre Atlantis SGPS does have some risks, we noticed 3 warning signs (and 1 which is potentially serious) we think you should know about.

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high returns on equity.

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