Stock Analysis

Should We Be Excited About The Trends Of Returns At Nizhnekamskneftekhim (MCX:NKNC)?

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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. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. Although, when we looked at Nizhnekamskneftekhim (MCX:NKNC), it didn't seem to tick all of these boxes.

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 Nizhnekamskneftekhim:

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

0.095 = ₽20b ÷ (₽246b - ₽32b) (Based on the trailing twelve months to June 2020).

Thus, Nizhnekamskneftekhim has an ROCE of 9.5%. Even though it's in line with the industry average of 9.6%, it's still a low return by itself.

See our latest analysis for Nizhnekamskneftekhim

MISX:NKNC Return on Capital Employed March 20th 2021

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

So How Is Nizhnekamskneftekhim's ROCE Trending?

In terms of Nizhnekamskneftekhim's historical ROCE movements, the trend isn't fantastic. Around five years ago the returns on capital were 29%, but since then they've fallen to 9.5%. Given the business is employing more capital while revenue has slipped, this is a bit concerning. If this were to continue, you might be looking at a company that is trying to reinvest for growth but is actually losing market share since sales haven't increased.

The Bottom Line

From the above analysis, we find it rather worrisome that returns on capital and sales for Nizhnekamskneftekhim have fallen, meanwhile the business is employing more capital than it was five years ago. Since the stock has skyrocketed 158% over the last five years, it looks like investors have high expectations of the stock. In any case, the current underlying trends don't bode well for long term performance so unless they reverse, we'd start looking elsewhere.

Since virtually every company faces some risks, it's worth knowing what they are, and we've spotted 5 warning signs for Nizhnekamskneftekhim (of which 1 makes us a bit uncomfortable!) that you should know about.

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. 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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Public Joint Stock Company Nizhnekamskneftekhim produces and sells petrochemicals in Russia.

Good value with mediocre balance sheet.

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