Corticeira Amorim S.G.P.S (ELI:COR) Will Want To Turn Around Its Return Trends

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing amount of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. In light of that, when we looked at Corticeira Amorim S.G.P.S (ELI:COR) and its ROCE trend, we weren't exactly thrilled.

What is Return On Capital Employed (ROCE)?

For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. The formula for this calculation on Corticeira Amorim S.G.P.S is:

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

0.11 = €80m ÷ (€1.0b - €270m) (Based on the trailing twelve months to March 2021).

Therefore, Corticeira Amorim S.G.P.S has an ROCE of 11%. By itself that's a normal return on capital and it's in line with the industry's average returns of 11%.

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

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'd like to see what analysts are forecasting going forward, you should check out our free report for Corticeira Amorim S.G.P.S.

How Are Returns Trending?

On the surface, the trend of ROCE at Corticeira Amorim S.G.P.S doesn't inspire confidence. To be more specific, ROCE has fallen from 18% over the last five years. 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.

Our Take On 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. Since the stock has gained an impressive 64% over the last five years, investors must think there's better things to come. Ultimately, if the underlying trends persist, we wouldn't hold our breath on it being a multi-bagger going forward.

Corticeira Amorim S.G.P.S could be trading at an attractive price in other respects, so you might find our free intrinsic value estimation on our platform quite valuable.

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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