Stock Analysis

The Returns On Capital At Nizhnekamskneftekhim (MCX:NKNC) Don't Inspire Confidence

MISX:NKNC
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If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out for. Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. However, after briefly looking over the numbers, we don't think Nizhnekamskneftekhim (MCX:NKNC) has the makings of a multi-bagger going forward, but let's have a look at why that may be.

Understanding Return On Capital Employed (ROCE)

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. To calculate this metric for Nizhnekamskneftekhim, this is the formula:

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

0.15 = ₽42b ÷ (₽299b - ₽23b) (Based on the trailing twelve months to June 2021).

Therefore, Nizhnekamskneftekhim has an ROCE of 15%. In isolation, that's a pretty standard return but against the Chemicals industry average of 31%, it's not as good.

See our latest analysis for Nizhnekamskneftekhim

roce
MISX:NKNC Return on Capital Employed January 16th 2022

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

What Can We Tell From Nizhnekamskneftekhim's ROCE Trend?

When we looked at the ROCE trend at Nizhnekamskneftekhim, we didn't gain much confidence. Over the last five years, returns on capital have decreased to 15% from 36% five years ago. Although, given both revenue and the amount of assets employed in the business have increased, it could suggest the company is investing in growth, and the extra capital has led to a short-term reduction in ROCE. If these investments prove successful, this can bode very well for long term stock performance.

The Key Takeaway

In summary, despite lower returns in the short term, we're encouraged to see that Nizhnekamskneftekhim is reinvesting for growth and has higher sales as a result. And the stock has done incredibly well with a 132% return over the last five years, so long term investors are no doubt ecstatic with that result. So should these growth trends continue, we'd be optimistic on the stock going forward.

Nizhnekamskneftekhim does have some risks, we noticed 4 warning signs (and 2 which are a bit concerning) we think 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.

Valuation is complex, but we're helping make it simple.

Find out whether Nizhnekamskneftekhim is potentially over or undervalued by checking out our comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, insider transactions and financial health.

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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.

About MISX:NKNC

Nizhnekamskneftekhim

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

Good value with mediocre balance sheet.

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