Investors Met With Slowing Returns on Capital At Elektro Celje d.d (LJSE:ECEG)

What trends should we look for it we want to identify stocks that can multiply in value over the long term? Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. However, after investigating Elektro Celje d.d (LJSE:ECEG), we don't think it's current trends fit the mold of a multi-bagger.

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. To calculate this metric for Elektro Celje d.d, this is the formula:

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

0.032 = €9.3m ÷ (€311m - €23m) (Based on the trailing twelve months to December 2021).

So, Elektro Celje d.d has an ROCE of 3.2%. Ultimately, that's a low return and it under-performs the Electric Utilities industry average of 8.9%.

Check out our latest analysis for Elektro Celje d.d

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

SWOT Analysis for Elektro Celje d.d

What Does the ROCE Trend For Elektro Celje d.d Tell Us?

Over the past two years, Elektro Celje d.d's ROCE and capital employed have both remained mostly flat. This tells us the company isn't reinvesting in itself, so it's plausible that it's past the growth phase. So don't be surprised if Elektro Celje d.d doesn't end up being a multi-bagger in a few years time.

The Key Takeaway

In summary, Elektro Celje d.d isn't compounding its earnings but is generating stable returns on the same amount of capital employed. Since the stock has declined 30% over the last five years, investors may not be too optimistic on this trend improving either. Therefore based on the analysis done in this article, we don't think Elektro Celje d.d has the makings of a multi-bagger.

One more thing: We've identified 3 warning signs with Elektro Celje d.d (at least 1 which is potentially serious) , and understanding them would certainly be useful.

While Elektro Celje 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. 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.