Returns On Capital At SOCEP (BVB:SOCP) Have Stalled

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing 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. Although, when we looked at SOCEP (BVB:SOCP), it didn't seem to tick all of these boxes.

What is Return On Capital Employed (ROCE)?

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. Analysts use this formula to calculate it for SOCEP:

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

0.04 = RON17m ÷ (RON457m - RON33m) (Based on the trailing twelve months to March 2022).

Therefore, SOCEP has an ROCE of 4.0%. Ultimately, that's a low return and it under-performs the Infrastructure industry average of 7.6%.

Check out our latest analysis for SOCEP

While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you'd like to look at how SOCEP has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.

What Can We Tell From SOCEP's ROCE Trend?

The returns on capital haven't changed much for SOCEP in recent years. The company has consistently earned 4.0% for the last five years, and the capital employed within the business has risen 156% in that time. This poor ROCE doesn't inspire confidence right now, and with the increase in capital employed, it's evident that the business isn't deploying the funds into high return investments.

The Bottom Line

In conclusion, SOCEP has been investing more capital into the business, but returns on that capital haven't increased. Investors must think there's better things to come because the stock has knocked it out of the park, delivering a 208% gain to shareholders who have held over the last five years. But if the trajectory of these underlying trends continue, we think the likelihood of it being a multi-bagger from here isn't high.

SOCEP does have some risks, we noticed 4 warning signs (and 3 which are concerning) we think you should know about.

While SOCEP may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.