S.N.T.G.N. Transgaz (BVB:TGN) Will Be Hoping To Turn Its Returns On Capital Around

What are the early trends we should look for to identify a stock that could multiply in value over the long term? Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding 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. 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 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. To calculate this metric for S.N.T.G.N. Transgaz, this is the formula:

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

0.035 = RON264m ÷ (RON9.1b - RON1.6b) (Based on the trailing twelve months to March 2024).

So, S.N.T.G.N. Transgaz has an ROCE of 3.5%. Ultimately, that's a low return and it under-performs the Gas Utilities industry average of 6.5%.

View 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 to see what analysts are forecasting going forward, you should check out our free analyst report for S.N.T.G.N. Transgaz .

So How Is S.N.T.G.N. Transgaz's ROCE 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 9.0% over the last five years. Meanwhile, the business is utilizing more capital but this hasn't moved the needle much in terms of sales in the past 12 months, so this could reflect longer term investments. It's worth keeping an eye on the company's earnings from here on to see if these investments do end up contributing to the bottom line.

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

Bringing it all together, while we're somewhat encouraged by S.N.T.G.N. Transgaz's reinvestment in its own business, we're aware that returns are shrinking. And investors may be recognizing these trends since the stock has only returned a total of 26% to shareholders over the last five years. 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 S.N.T.G.N. Transgaz it's worth checking out our FREE intrinsic value approximation for TGN 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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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.

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