We're Watching These Trends At NPO Nauka (MCX:NAUK)

To find a multi-bagger stock, what are the underlying trends we should look for in a business? 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. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. 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. The formula for this calculation on NPO Nauka is:

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

0.057 = ₽282m ÷ (₽6.0b - ₽1.1b) (Based on the trailing twelve months to June 2020).

Therefore, NPO Nauka has an ROCE of 5.7%. In absolute terms, that's a low return and it also under-performs the Aerospace & Defense industry average of 10.0%.

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 want to delve into the historical earnings, revenue and cash flow of NPO Nauka, check out these free graphs here.

So How Is NPO Nauka's ROCE Trending?

Over the past one year, NPO Nauka's ROCE and capital employed have both remained mostly flat. It's not uncommon to see this when looking at a mature and stable business that isn't re-investing its earnings because it has likely passed that phase of the business cycle. So don't be surprised if NPO Nauka doesn't end up being a multi-bagger in a few years time.

What We Can Learn From NPO Nauka's ROCE

In a nutshell, NPO Nauka has been trudging along with the same returns from the same amount of capital over the last one year. Yet to long term shareholders the stock has gifted them an incredible 104% return in the last five years, so the market appears to be rosy about its future. But if the trajectory of these underlying trends continue, we think the likelihood of it being a multi-bagger from here isn't high.

If you'd like to know more about NPO Nauka, we've spotted 4 warning signs, and 2 of them don't sit too well with us.

While NPO Nauka 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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