Stock Analysis

Here's What's Concerning About Novorossiysk Commercial Sea Port's (MCX:NMTP) Returns On Capital

MISX:NMTP
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Ignoring the stock price of a company, what are the underlying trends that tell us a business is past the growth phase? Businesses in decline often have two underlying trends, firstly, a declining return on capital employed (ROCE) and a declining base of capital employed. This indicates to us that the business is not only shrinking the size of its net assets, but its returns are falling as well. And from a first read, things don't look too good at Novorossiysk Commercial Sea Port (MCX:NMTP), so let's see why.

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. To calculate this metric for Novorossiysk Commercial Sea Port, this is the formula:

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

0.16 = US$303m ÷ (US$2.2b - US$290m) (Based on the trailing twelve months to March 2021).

So, Novorossiysk Commercial Sea Port has an ROCE of 16%. In absolute terms, that's a satisfactory return, but compared to the Infrastructure industry average of 8.0% it's much better.

See our latest analysis for Novorossiysk Commercial Sea Port

roce
MISX:NMTP Return on Capital Employed August 24th 2021

In the above chart we have measured Novorossiysk Commercial Sea Port's prior ROCE against its prior performance, but the future is arguably more important. If you'd like to see what analysts are forecasting going forward, you should check out our free report for Novorossiysk Commercial Sea Port.

The Trend Of ROCE

In terms of Novorossiysk Commercial Sea Port's historical ROCE movements, the trend doesn't inspire confidence. Unfortunately the returns on capital have diminished from the 38% that they were earning five years ago. Meanwhile, capital employed in the business has stayed roughly the flat over the period. Companies that exhibit these attributes tend to not be shrinking, but they can be mature and facing pressure on their margins from competition. If these trends continue, we wouldn't expect Novorossiysk Commercial Sea Port to turn into a multi-bagger.

The Bottom Line On Novorossiysk Commercial Sea Port's ROCE

In summary, it's unfortunate that Novorossiysk Commercial Sea Port is generating lower returns from the same amount of capital. Yet despite these poor fundamentals, the stock has gained a huge 163% over the last five years, so investors appear very optimistic. In any case, the current underlying trends don't bode well for long term performance so unless they reverse, we'd start looking elsewhere.

Like most companies, Novorossiysk Commercial Sea Port does come with some risks, and we've found 2 warning signs that you should be aware of.

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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.
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About MISX:NMTP

Novorossiysk Commercial Sea Port

Public Joint Stock Company Novorossiysk Commercial Sea Port, together with its subsidiaries, provides stevedoring, port, and sea vessel services in Russia.

Excellent balance sheet and fair value.

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