The Returns At S.N.T.G.N. Transgaz (BVB:TGN) Provide Us With Signs Of What's To Come

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. However, after investigating S.N.T.G.N. Transgaz (BVB:TGN), we don't think it's current trends fit the mold of a multi-bagger.

Understanding 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 S.N.T.G.N. Transgaz is:

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

0.051 = RON302m ÷ (RON6.6b - RON594m) (Based on the trailing twelve months to September 2020).

So, S.N.T.G.N. Transgaz has an ROCE of 5.1%. Even though it's in line with the industry average of 5.1%, it's still a low return by itself.

See our latest analysis for S.N.T.G.N. Transgaz

Above you can see how the current ROCE for S.N.T.G.N. Transgaz 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 S.N.T.G.N. Transgaz here for free.

How Are Returns Trending?

On the surface, the trend of ROCE at S.N.T.G.N. Transgaz doesn't inspire confidence. To be more specific, ROCE has fallen from 13% over the last five years. Although, given both revenue and the amount of assets employed in the business have increased, it could suggest the company is investing in growth, and the extra capital has led to a short-term reduction in ROCE. And if the increased capital generates additional returns, the business, and thus shareholders, will benefit in the long run.

What We Can Learn From S.N.T.G.N. Transgaz's ROCE

In summary, despite lower returns in the short term, we're encouraged to see that S.N.T.G.N. Transgaz is reinvesting for growth and has higher sales as a result. Furthermore the stock has climbed 75% over the last five years, it would appear that investors are upbeat about the future. So should these growth trends continue, we'd be optimistic on the stock going forward.

S.N.T.G.N. Transgaz does come with some risks though, we found 4 warning signs in our investment analysis, and 2 of those shouldn't be ignored...

While S.N.T.G.N. Transgaz 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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