Stock Analysis

Is This A Sign of Things To Come At Novorossiysk Commercial Sea Port (MCX:NMTP)?

MISX:NMTP
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If we're looking to avoid a business that is in decline, what are the trends that can warn us ahead of time? More often than not, we'll see a declining return on capital employed (ROCE) and a declining amount of capital employed. This reveals that the company isn't compounding shareholder wealth because returns are falling and its net asset base is shrinking. So after glancing at the trends within Novorossiysk Commercial Sea Port (MCX:NMTP), we weren't too hopeful.

What is Return On Capital Employed (ROCE)?

For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed 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)

0.21 = US$393m ÷ (US$2.1b - US$275m) (Based on the trailing twelve months to September 2020).

Therefore, Novorossiysk Commercial Sea Port has an ROCE of 21%. In absolute terms that's a great return and it's even better than the Infrastructure industry average of 7.9%.

View our latest analysis for Novorossiysk Commercial Sea Port

roce
MISX:NMTP Return on Capital Employed March 12th 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, you can check out the forecasts from the analysts covering Novorossiysk Commercial Sea Port here for free.

What Does the ROCE Trend For Novorossiysk Commercial Sea Port Tell Us?

In terms of Novorossiysk Commercial Sea Port's historical ROCE movements, the trend doesn't inspire confidence. About five years ago, returns on capital were 32%, however they're now substantially lower than that as we saw above. On top of that, it's worth noting that the amount of capital employed within the business has remained relatively steady. This combination can be indicative of a mature business that still has areas to deploy capital, but the returns received aren't as high due potentially to new competition or smaller margins. So because these trends aren't typically conducive to creating a multi-bagger, we wouldn't hold our breath on Novorossiysk Commercial Sea Port becoming one if things continue as they have.

Our Take On Novorossiysk Commercial Sea Port's ROCE

In the end, the trend of lower returns on the same amount of capital isn't typically an indication that we're looking at a growth stock. Since the stock has skyrocketed 262% 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.

On a final note, we've found 3 warning signs for Novorossiysk Commercial Sea Port that we think you should be aware of.

If you want to search for more stocks that have been earning high returns, check out this free list of stocks with solid balance sheets that are also earning high 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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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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