Mosenergo (MCX:MSNG) Has Some Way To Go To Become A Multi-Bagger

What are the early trends we should look for to identify a stock that could multiply in value over the long term? Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. In light of that, when we looked at Mosenergo (MCX:MSNG) and its ROCE trend, we weren't exactly thrilled.

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. The formula for this calculation on Mosenergo is:

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

0.04 = ₽16b ÷ (₽402b - ₽17b) (Based on the trailing twelve months to September 2021).

So, Mosenergo has an ROCE of 4.0%. In absolute terms, that's a low return and it also under-performs the Electric Utilities industry average of 9.4%.

See our latest analysis for Mosenergo

Above you can see how the current ROCE for Mosenergo compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like, you can check out the forecasts from the analysts covering Mosenergo here for free.

So How Is Mosenergo's ROCE Trending?

The returns on capital haven't changed much for Mosenergo in recent years. The company has consistently earned 4.0% for the last five years, and the capital employed within the business has risen 31% in that time. This poor ROCE doesn't inspire confidence right now, and with the increase in capital employed, it's evident that the business isn't deploying the funds into high return investments.

In Conclusion...

In conclusion, Mosenergo has been investing more capital into the business, but returns on that capital haven't increased. And with the stock having returned a mere 18% in the last five years to shareholders, you could argue that they're aware of these lackluster trends. Therefore, if you're looking for a multi-bagger, we'd propose looking at other options.

If you want to know some of the risks facing Mosenergo we've found 3 warning signs (1 is a bit concerning!) that you should be aware of before investing here.

While Mosenergo may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.

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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.