Should We Be Excited About The Trends Of Returns At Elektro Maribor d.d (LJSE:EMAG)?

If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out for. Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, 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 Maribor d.d (LJSE:EMAG), we don't think it's current trends fit the mold of a multi-bagger.

Understanding 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 Maribor d.d, this is the formula:

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

0.041 = €15m ÷ (€419m - €43m) (Based on the trailing twelve months to December 2019).

Therefore, Elektro Maribor d.d has an ROCE of 4.1%. Ultimately, that's a low return and it under-performs the Electric Utilities industry average of 6.6%.

See our latest analysis for Elektro Maribor d.d

Historical performance is a great place to start when researching a stock so above you can see the gauge for Elektro Maribor d.d's ROCE against it's prior returns. If you're interested in investigating Elektro Maribor d.d's past further, check out this free graph of past earnings, revenue and cash flow.

How Are Returns Trending?

There hasn't been much to report for Elektro Maribor d.d's returns and its level of capital employed because both metrics have been steady for the past five years. Businesses with these traits tend to be mature and steady operations because they're past the growth phase. So unless we see a substantial change at Elektro Maribor d.d in terms of ROCE and additional investments being made, we wouldn't hold our breath on it being a multi-bagger.

In Conclusion...

In summary, Elektro Maribor d.d isn't compounding its earnings but is generating stable returns on the same amount of capital employed. Since the stock has declined 27% over the last year, investors may not be too optimistic on this trend improving either. On the whole, we aren't too inspired by the underlying trends and we think there may be better chances of finding a multi-bagger elsewhere.

If you'd like to know more about Elektro Maribor d.d, we've spotted 4 warning signs, and 1 of them is significant.

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high returns on equity.

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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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