Capital Allocation Trends At NPO Nauka (MCX:NAUK) Aren't Ideal

If you're looking for a multi-bagger, there's a few things to keep an eye out for. Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's amount of capital employed. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. Although, when we looked at NPO Nauka (MCX:NAUK), it didn't seem to tick all of these boxes.

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 NPO Nauka, this is the formula:

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

0.02 = ₽93m ÷ (₽5.7b - ₽987m) (Based on the trailing twelve months to December 2020).

Thus, NPO Nauka has an ROCE of 2.0%. Ultimately, that's a low return and it under-performs the Aerospace & Defense industry average of 8.7%.

See our latest analysis for NPO Nauka

Historical performance is a great place to start when researching a stock so above you can see the gauge for NPO Nauka's ROCE against it's prior returns. If you're interested in investigating NPO Nauka's past further, check out this free graph of past earnings, revenue and cash flow.

So How Is NPO Nauka's ROCE Trending?

On the surface, the trend of ROCE at NPO Nauka doesn't inspire confidence. Over the last two years, returns on capital have decreased to 2.0% from 6.0% two years ago. However it looks like NPO Nauka might be reinvesting for long term growth because while capital employed has increased, the company's sales haven't changed much in the last 12 months. It may take some time before the company starts to see any change in earnings from these investments.

Our Take On NPO Nauka's ROCE

To conclude, we've found that NPO Nauka is reinvesting in the business, but returns have been falling. And investors appear hesitant that the trends will pick up because the stock has fallen 18% in the last five years. In any case, the stock doesn't have these traits of a multi-bagger discussed above, so if that's what you're looking for, we think you'd have more luck elsewhere.

If you want to know some of the risks facing NPO Nauka we've found 4 warning signs (2 don't sit too well with us!) that you should be aware of before investing here.

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive 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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