There are a few key trends to look for if we want to identify the next multi-bagger. In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. Having said that, from a first glance at Slavneft-Yaroslavnefteorgsintez (MCX:JNOS) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper look.
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. The formula for this calculation on Slavneft-Yaroslavnefteorgsintez is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.083 = ₽8.7b ÷ (₽124b - ₽19b) (Based on the trailing twelve months to June 2020).
Thus, Slavneft-Yaroslavnefteorgsintez has an ROCE of 8.3%. On its own that's a low return on capital but it's in line with the industry's average returns of 8.3%.
Historical performance is a great place to start when researching a stock so above you can see the gauge for Slavneft-Yaroslavnefteorgsintez's ROCE against it's prior returns. If you want to delve into the historical earnings, revenue and cash flow of Slavneft-Yaroslavnefteorgsintez, check out these free graphs here.
The Trend Of ROCE
On the surface, the trend of ROCE at Slavneft-Yaroslavnefteorgsintez doesn't inspire confidence. Over the last five years, returns on capital have decreased to 8.3% from 16% five years ago. However it looks like Slavneft-Yaroslavnefteorgsintez 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'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.
Bringing it all together, while we're somewhat encouraged by Slavneft-Yaroslavnefteorgsintez's reinvestment in its own business, we're aware that returns are shrinking. And in the last five years, the stock has given away 25% so the market doesn't look too hopeful on these trends strengthening any time soon. 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.
Like most companies, Slavneft-Yaroslavnefteorgsintez does come with some risks, and we've found 1 warning sign that you should be aware of.
While Slavneft-Yaroslavnefteorgsintez 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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