We Think Ryazanenergosbyt (MCX:RZSB) Might Have The DNA Of A Multi-Bagger

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing 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. So when we looked at the ROCE trend of Ryazanenergosbyt (MCX:RZSB) we really liked what we saw.

Understanding 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. To calculate this metric for Ryazanenergosbyt, this is the formula:

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

0.29 = ₽233m ÷ (₽1.7b - ₽925m) (Based on the trailing twelve months to December 2020).

Therefore, Ryazanenergosbyt has an ROCE of 29%. In absolute terms that's a great return and it's even better than the Electric Utilities industry average of 9.8%.

View our latest analysis for Ryazanenergosbyt

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

What Does the ROCE Trend For Ryazanenergosbyt Tell Us?

We're delighted to see that Ryazanenergosbyt is reaping rewards from its investments and is now generating some pre-tax profits. About five years ago the company was generating losses but things have turned around because it's now earning 29% on its capital. Not only that, but the company is utilizing 72% more capital than before, but that's to be expected from a company trying to break into profitability. This can tell us that the company has plenty of reinvestment opportunities that are able to generate higher returns.

On a side note, Ryazanenergosbyt's current liabilities are still rather high at 54% of total assets. This effectively means that suppliers (or short-term creditors) are funding a large portion of the business, so just be aware that this can introduce some elements of risk. While it's not necessarily a bad thing, it can be beneficial if this ratio is lower.

In Conclusion...

Long story short, we're delighted to see that Ryazanenergosbyt's reinvestment activities have paid off and the company is now profitable. And a remarkable 939% total return over the last five years tells us that investors are expecting more good things to come in the future. In light of that, we think it's worth looking further into this stock because if Ryazanenergosbyt can keep these trends up, it could have a bright future ahead.

On a final note, we've found 2 warning signs for Ryazanenergosbyt that we think you should be aware of.

If you'd like to see other companies earning high returns, check out our free list of companies earning high returns with solid balance sheets here.

If you’re looking to trade Ryazanenergosbyt, open an account with the lowest-cost* platform trusted by professionals, Interactive Brokers. Their clients from over 200 countries and territories trade stocks, options, futures, forex, bonds and funds worldwide from a single integrated account. Promoted

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.
^*Interactive Brokers Rated Lowest Cost Broker by StockBrokers.com Annual Online Review 2020

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.