Investors Shouldn't Overlook The Favourable Returns On Capital At Kamchatskenergo (MCX:KCHE)

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. 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. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. With that in mind, the ROCE of Kamchatskenergo (MCX:KCHE) looks attractive right now, so lets see what the trend of returns can tell us.

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. Analysts use this formula to calculate it for Kamchatskenergo:

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

0.32 = ₽5.0b ÷ (₽24b - ₽7.9b) (Based on the trailing twelve months to December 2020).

So, Kamchatskenergo has an ROCE of 32%. In absolute terms that's a great return and it's even better than the Electric Utilities industry average of 9.0%.

See our latest analysis for Kamchatskenergo

Historical performance is a great place to start when researching a stock so above you can see the gauge for Kamchatskenergo's ROCE against it's prior returns. If you want to delve into the historical earnings, revenue and cash flow of Kamchatskenergo, check out these free graphs here.

So How Is Kamchatskenergo's ROCE Trending?

We'd be pretty happy with returns on capital like Kamchatskenergo. The company has consistently earned 32% for the last three years, and the capital employed within the business has risen 175% in that time. With returns that high, it's great that the business can continually reinvest its money at such appealing rates of return. If these trends can continue, it wouldn't surprise us if the company became a multi-bagger.

One more thing to note, even though ROCE has remained relatively flat over the last three years, the reduction in current liabilities to 33% of total assets, is good to see from a business owner's perspective. Effectively suppliers now fund less of the business, which can lower some elements of risk.

The Key Takeaway

Kamchatskenergo has demonstrated its proficiency by generating high returns on increasing amounts of capital employed, which we're thrilled about. On top of that, the stock has rewarded shareholders with a remarkable 133% return to those who've held over the last five years. So while investors seem to be recognizing these promising trends, we still believe the stock deserves further research.

One more thing to note, we've identified 2 warning signs with Kamchatskenergo and understanding them 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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