Are Investors Concerned With What's Going On At Navigator Company (ELI:NVG)?

If we're looking to avoid a business that is in decline, what are the trends that can warn us ahead of time? Typically, we'll see the trend of both return on capital employed (ROCE) declining and this usually coincides with a decreasing amount of capital employed. This indicates the company is producing less profit from its investments and its total assets are decreasing. In light of that, from a first glance at Navigator Company (ELI:NVG), we've spotted some signs that it could be struggling, so let's investigate.

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. To calculate this metric for Navigator Company, this is the formula:

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

0.056 = €113m ÷ (€2.7b - €661m) (Based on the trailing twelve months to September 2020).

Thus, Navigator Company has an ROCE of 5.6%. On its own that's a low return on capital but it's in line with the industry's average returns of 5.7%.

View our latest analysis for Navigator Company

Above you can see how the current ROCE for Navigator Company 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 Navigator Company here for free.

How Are Returns Trending?

In terms of Navigator Company's historical ROCE movements, the trend doesn't inspire confidence. About five years ago, returns on capital were 12%, however they're now substantially lower than that as we saw above. On top of that, it's worth noting that the amount of capital employed within the business has remained relatively steady. This combination can be indicative of a mature business that still has areas to deploy capital, but the returns received aren't as high due potentially to new competition or smaller margins. So because these trends aren't typically conducive to creating a multi-bagger, we wouldn't hold our breath on Navigator Company becoming one if things continue as they have.

In Conclusion...

All in all, the lower returns from the same amount of capital employed aren't exactly signs of a compounding machine. In spite of that, the stock has delivered a 22% return to shareholders who held over the last five years. Either way, we aren't huge fans of the current trends and so with that we think you might find better investments elsewhere.

If you'd like to know more about Navigator Company, we've spotted 5 warning signs, and 1 of them doesn't sit too well with us.

While Navigator Company isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

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