We're Watching These Trends At Luka Koper d.d (LJSE:LKPG)

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. However, after investigating Luka Koper d.d (LJSE:LKPG), we don't think it's current trends fit the mold of a multi-bagger.

What is Return On Capital Employed (ROCE)?

For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. Analysts use this formula to calculate it for Luka Koper d.d:

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

0.053 = €29m ÷ (€608m - €60m) (Based on the trailing twelve months to September 2020).

Thus, Luka Koper d.d has an ROCE of 5.3%. In absolute terms, that's a low return but it's around the Infrastructure industry average of 6.2%.

Check out our latest analysis for Luka Koper d.d

Historical performance is a great place to start when researching a stock so above you can see the gauge for Luka Koper d.d's ROCE against it's prior returns. If you'd like to look at how Luka Koper d.d has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.

So How Is Luka Koper d.d's ROCE Trending?

On the surface, the trend of ROCE at Luka Koper d.d doesn't inspire confidence. Over the last five years, returns on capital have decreased to 5.3% from 9.0% five years ago. However it looks like Luka Koper d.d might be reinvesting for long term growth because while capital employed has increased, the company's sales haven't changed much in the last 12 months. It's worth keeping an eye on the company's earnings from here on to see if these investments do end up contributing to the bottom line.

The Bottom Line On Luka Koper d.d's ROCE

In summary, Luka Koper d.d is reinvesting funds back into the business for growth but unfortunately it looks like sales haven't increased much just yet. And with the stock having returned a mere 14% 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.

On a final note, we've found 1 warning sign for Luka Koper d.d that we think you should be aware of.

While Luka Koper d.d isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

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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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