Corticeira Amorim S.G.P.S (ELI:COR) Is Reinvesting At Lower Rates Of Return

Simply Wall St
January 26, 2022
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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. 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. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. Having said that, from a first glance at Corticeira Amorim S.G.P.S (ELI:COR) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper look.

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

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. Analysts use this formula to calculate it for Corticeira Amorim S.G.P.S:

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

0.12 = €94m ÷ (€1.1b - €324m) (Based on the trailing twelve months to September 2021).

So, Corticeira Amorim S.G.P.S has an ROCE of 12%. In absolute terms, that's a satisfactory return, but compared to the Packaging industry average of 9.8% it's much better.

See our latest analysis for Corticeira Amorim S.G.P.S

ENXTLS:COR Return on Capital Employed January 26th 2022

Above you can see how the current ROCE for Corticeira Amorim S.G.P.S compares to its prior returns on capital, but there's only so much you can tell from the past. If you're interested, you can view the analysts predictions in our free report on analyst forecasts for the company.

What Does the ROCE Trend For Corticeira Amorim S.G.P.S Tell Us?

On the surface, the trend of ROCE at Corticeira Amorim S.G.P.S doesn't inspire confidence. Over the last five years, returns on capital have decreased to 12% from 19% five years ago. On the other hand, the company has been employing more capital without a corresponding improvement in sales in the last year, which could suggest these investments are longer term plays. It may take some time before the company starts to see any change in earnings from these investments.

What We Can Learn From Corticeira Amorim S.G.P.S' ROCE

To conclude, we've found that Corticeira Amorim S.G.P.S is reinvesting in the business, but returns have been falling. And with the stock having returned a mere 32% in the last five years to shareholders, you could argue that they're aware of these lackluster trends. So if you're looking for a multi-bagger, the underlying trends indicate you may have better chances elsewhere.

If you're still interested in Corticeira Amorim S.G.P.S it's worth checking out our FREE intrinsic value approximation to see if it's trading at an attractive price in other respects.

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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