Yahoo Finance Pittler Maschinenfabrik (FRA:PIT) Will Want To Turn Around Its Return Trends
There are a few key trends to look for if we want to identify the next multi-bagger. 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 Pittler Maschinenfabrik (FRA:PIT), we don't think it's current trends fit the mold of a multi-bagger.
Understanding Return On Capital Employed (ROCE)
If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. Analysts use this formula to calculate it for Pittler Maschinenfabrik:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.0096 = €155k ÷ (€18m - €1.7m) (Based on the trailing twelve months to June 2023).
Therefore, Pittler Maschinenfabrik has an ROCE of 1.0%. In absolute terms, that's a low return and it also under-performs the Machinery industry average of 11%.
See our latest analysis for Pittler Maschinenfabrik
Historical performance is a great place to start when researching a stock so above you can see the gauge for Pittler Maschinenfabrik's ROCE against it's prior returns. If you're interested in investigating Pittler Maschinenfabrik's past further, check out this free graph covering Pittler Maschinenfabrik's past earnings, revenue and cash flow.
What The Trend Of ROCE Can Tell Us
In terms of Pittler Maschinenfabrik's historical ROCE movements, the trend isn't fantastic. Over the last five years, returns on capital have decreased to 1.0% from 4.7% five years ago. However it looks like Pittler Maschinenfabrik 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 may take some time before the company starts to see any change in earnings from these investments.
The Bottom Line On Pittler Maschinenfabrik's ROCE
In summary, Pittler Maschinenfabrik is reinvesting funds back into the business for growth but unfortunately it looks like sales haven't increased much just yet. Since the stock has declined 27% 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 Pittler Maschinenfabrik has the makings of a multi-bagger.
If you want to continue researching Pittler Maschinenfabrik, you might be interested to know about the 2 warning signs that our analysis has discovered.
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. 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.
