Is Metalac a.d. Gornji Milanovac (BELEX:MTLC) Likely To Turn Things Around?

To find a multi-bagger stock, what are the underlying trends we should look for in a business? Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount 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 Metalac a.d. Gornji Milanovac (BELEX:MTLC), it didn't seem to tick all of these boxes.

Return On Capital Employed (ROCE): What is it?

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. Analysts use this formula to calculate it for Metalac a.d. Gornji Milanovac:

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

0.061 = дин440m ÷ (дин9.5b - дин2.2b) (Based on the trailing twelve months to June 2020).

So, Metalac a.d. Gornji Milanovac has an ROCE of 6.1%. In absolute terms, that's a low return and it also under-performs the Consumer Durables industry average of 8.0%.

Check out our latest analysis for Metalac a.d. Gornji Milanovac

Historical performance is a great place to start when researching a stock so above you can see the gauge for Metalac a.d. Gornji Milanovac's ROCE against it's prior returns. If you'd like to look at how Metalac a.d. Gornji Milanovac 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 Metalac a.d. Gornji Milanovac's ROCE Trend?

In terms of Metalac a.d. Gornji Milanovac's historical ROCE trend, it doesn't exactly demand attention. The company has employed 29% more capital in the last five years, and the returns on that capital have remained stable at 6.1%. 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 Key Takeaway

In summary, Metalac a.d. Gornji Milanovac has simply been reinvesting capital and generating the same low rate of return as before. Since the stock has declined 19% over the last five years, investors may not be too optimistic on this trend improving either. On the whole, we aren't too inspired by the underlying trends and we think there may be better chances of finding a multi-bagger elsewhere.

Metalac a.d. Gornji Milanovac does have some risks, we noticed 3 warning signs (and 1 which is potentially serious) we think you should know about.

While Metalac a.d. Gornji Milanovac 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. 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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