Stock Analysis

The Returns At Copa Holdings (NYSE:CPA) Aren't Growing

  •  Updated
NYSE:CPA
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If you're looking for a multi-bagger, there's a few things to keep an eye out for. Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount 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. Having said that, from a first glance at Copa Holdings (NYSE:CPA) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper look.

Return On Capital Employed (ROCE): What Is It?

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. To calculate this metric for Copa Holdings, this is the formula:

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

0.096 = US$301m ÷ (US$4.4b - US$1.3b) (Based on the trailing twelve months to June 2022).

Thus, Copa Holdings has an ROCE of 9.6%. On its own that's a low return, but compared to the average of 4.8% generated by the Airlines industry, it's much better.

View our latest analysis for Copa Holdings

roce
NYSE:CPA Return on Capital Employed September 7th 2022

In the above chart we have measured Copa Holdings' prior ROCE against its prior performance, but the future is arguably more important. If you'd like, you can check out the forecasts from the analysts covering Copa Holdings here for free.

The Trend Of ROCE

There hasn't been much to report for Copa Holdings' 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 don't be surprised if Copa Holdings doesn't end up being a multi-bagger in a few years time.

What We Can Learn From Copa Holdings' ROCE

We can conclude that in regards to Copa Holdings' returns on capital employed and the trends, there isn't much change to report on. And investors appear hesitant that the trends will pick up because the stock has fallen 43% in the last five years. In any case, the stock doesn't have these traits of a multi-bagger discussed above, so if that's what you're looking for, we think you'd have more luck elsewhere.

If you'd like to know about the risks facing Copa Holdings, we've discovered 1 warning sign that you should be aware of.

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive returns on equity.

Valuation is complex, but we're helping make it simple.

Find out whether Copa Holdings is potentially over or undervalued by checking out our comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, insider transactions and financial health.

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About NYSE:CPA

Copa Holdings

Copa Holdings, S.A., through its subsidiaries, provides airline passenger and cargo services.

The Snowflake is a visual investment summary with the score of each axis being calculated by 6 checks in 5 areas.

Analysis AreaScore (0-6)
Valuation3
Future Growth3
Past Performance2
Financial Health2
Dividends0

Read more about these checks in the individual report sections or in our analysis model.

Fair value with moderate growth potential.