Is PJSC Russian Aquaculture (MCX:AQUA) The Next Multi-Bagger?

Finding a business that has the potential to grow substantially is not easy, but it is possible if we look at a few key financial metrics. Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. And in light of that, the trends we're seeing at PJSC Russian Aquaculture's (MCX:AQUA) look very promising so lets take a look.

What is Return On Capital Employed (ROCE)?

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. Analysts use this formula to calculate it for PJSC Russian Aquaculture:

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

0.22 = ₽2.1b ÷ (₽13b - ₽3.7b) (Based on the trailing twelve months to June 2020).

Thus, PJSC Russian Aquaculture has an ROCE of 22%. In absolute terms that's a great return and it's even better than the Food industry average of 8.2%.

See our latest analysis for PJSC Russian Aquaculture

While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you want to delve into the historical earnings, revenue and cash flow of PJSC Russian Aquaculture, check out these free graphs here.

What The Trend Of ROCE Can Tell Us

The fact that PJSC Russian Aquaculture is now generating some pre-tax profits from its prior investments is very encouraging. About five years ago the company was generating losses but things have turned around because it's now earning 22% on its capital. Not only that, but the company is utilizing 175% more capital than before, but that's to be expected from a company trying to break into profitability. We like this trend, because it tells us the company has profitable reinvestment opportunities available to it, and if it continues going forward that can lead to a multi-bagger performance.

On a related note, the company's ratio of current liabilities to total assets has decreased to 27%, which basically reduces it's funding from the likes of short-term creditors or suppliers. So shareholders would be pleased that the growth in returns has mostly come from underlying business performance.

What We Can Learn From PJSC Russian Aquaculture's ROCE

To the delight of most shareholders, PJSC Russian Aquaculture has now broken into profitability. And a remarkable 475% total return over the last five years tells us that investors are expecting more good things to come in the future. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.

One more thing to note, we've identified 3 warning signs with PJSC Russian Aquaculture and understanding these should be part of your investment process.

High returns are a key ingredient to strong performance, so check out our free list ofstocks earning high returns on equity with solid balance sheets.

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