Is Gazprom Gazoraspredelenie Rostov-na-Donu (MCX:RTGZ) Likely To Turn Things Around?

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. However, after briefly looking over the numbers, we don't think Gazprom Gazoraspredelenie Rostov-na-Donu (MCX:RTGZ) has the makings of a multi-bagger going forward, but let's have a look at why that may be.

What is Return On Capital Employed (ROCE)?

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. The formula for this calculation on Gazprom Gazoraspredelenie Rostov-na-Donu is:

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

0.051 = ₽1.1b ÷ (₽24b - ₽3.0b) (Based on the trailing twelve months to March 2020).

Thus, Gazprom Gazoraspredelenie Rostov-na-Donu has an ROCE of 5.1%. In absolute terms, that's a low return and it also under-performs the Gas Utilities industry average of 6.9%.

See our latest analysis for Gazprom Gazoraspredelenie Rostov-na-Donu

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

What Can We Tell From Gazprom Gazoraspredelenie Rostov-na-Donu's ROCE Trend?

In terms of Gazprom Gazoraspredelenie Rostov-na-Donu's historical ROCE movements, the trend isn't fantastic. Around five years ago the returns on capital were 13%, but since then they've fallen to 5.1%. On the other hand, the company has been employing more capital without a corresponding improvement in sales in the last year, which could suggest these investments are longer term plays. It may take some time before the company starts to see any change in earnings from these investments.

Our Take On Gazprom Gazoraspredelenie Rostov-na-Donu's ROCE

Bringing it all together, while we're somewhat encouraged by Gazprom Gazoraspredelenie Rostov-na-Donu's reinvestment in its own business, we're aware that returns are shrinking. Yet to long term shareholders the stock has gifted them an incredible 292% return in the last five years, so the market appears to be rosy about its future. But if the trajectory of these underlying trends continue, we think the likelihood of it being a multi-bagger from here isn't high.

On a final note, we found 4 warning signs for Gazprom Gazoraspredelenie Rostov-na-Donu (1 is significant) you should be aware of.

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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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