LPA Group (LON:LPA) Might Be Having Difficulty Using Its Capital Effectively

Simply Wall St
·3 min read

To find a multi-bagger stock, what are the underlying trends we should look for in a business? Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount 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 briefly looking over the numbers, we don't think LPA Group (LON:LPA) has the makings of a multi-bagger going forward, but let's have a look at why that may be.

What Is Return On Capital Employed (ROCE)?

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. To calculate this metric for LPA Group, this is the formula:

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

0.064 = UK£1.1m ÷ (UK£22m - UK£5.1m) (Based on the trailing twelve months to September 2022).

Therefore, LPA Group has an ROCE of 6.4%. In absolute terms, that's a low return and it also under-performs the Electrical industry average of 14%.

See our latest analysis for LPA Group

roce
roce

In the above chart we have measured LPA Group's 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 LPA Group here for free.

How Are Returns Trending?

In terms of LPA Group's historical ROCE movements, the trend isn't fantastic. Over the last five years, returns on capital have decreased to 6.4% from 14% five years ago. Meanwhile, the business is utilizing more capital but this hasn't moved the needle much in terms of sales in the past 12 months, so this could reflect longer term investments. 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.

Our Take On LPA Group's ROCE

To conclude, we've found that LPA Group is reinvesting in the business, but returns have been falling. Since the stock has declined 51% over the last five years, investors may not be too optimistic on this trend improving either. 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 more about LPA Group, we've spotted 2 warning signs, and 1 of them is a bit unpleasant.

While LPA Group may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.

Join A Paid User Research Session
You’ll receive a US$30 Amazon Gift card for 1 hour of your time while helping us build better investing tools for the individual investors like yourself. Sign up here

  • Up next
  • Up next
  • Up next
  • Up next

Latest Stories

  • US STOCKS-Wall Street shares close up as megacap tech stocks rally

    U.S. stocks closed higher on Friday, buoyed by a rally in megacap growth stocks following robust quarterly results from technology heavyweights Alphabet and Microsoft in addition to moderate inflation data. Investors cheered Alphabet's first-ever dividend, its $70 billion stock buyback program, and better-than-expected first-quarter results. Microsoft shares rose after its third-quarter revenue and profit exceeded Wall Street estimates, driven by gains from artificial intelligence (AI) adoption across its cloud services.

  • Corrections and clarifications

    UK car insurance premiums | Titanic dining scene | Birch trees image

  • BBC confirms Beyond Paradise's future – details

    The BBC has confirmed the fate of Beyond Paradise, the popular spin-off from Death in Paradise. Will Kris Marshall and Sally Bretton be returning for a third outing?

  • Rory McIlroy, Shane Lowry finish Friday strong to stay in contention at the Zurich Classic 2024

    "We hung in there and 2 under is not a bad score."

  • Home run robbery, HBPs and 9th inning eruption: KC Royals have new win streak brewing

    Don’t look now ... a new Kansas City Royals win streak is in full swing.

  • Starting QBs return for SEC's top 4 from last season as other teams turn to backups, transfers

    All four of the Southeastern Conference's top 10 teams in last season's final AP Top 25 return established starting quarterbacks. Beyond that top group, there is plenty of competition and new starters, either via the transfer portal or with backups moving into the top job. At least seven SEC teams figure to have new starting quarterbacks going into next season.

  • Florida County Holds “Star Wars”-Themed Wedding Ceremony on May 4: ‘May the Vows Be with You!’

    “We are thrilled to offer couples the opportunity to unite in matrimony in a galaxy far, far away, right here in Clearwater,” the announcement read

  • Seth Lugo throws 7 scoreless innings, leads Royals past Tigers 8-0

    DETROIT (AP) — Seth Lugo pitched seven scoreless innings and the Kansas City Royals won their fourth straight game, beating the Detroit Tigers 8-0 on Friday. Lugo (4-1) allowed three singles and matched a career high with nine strikeouts in a game played at 1:10 pm due to the NFL draft festivities in downtown Detroit on Friday evening. Tigers starter Reese Olson (0-4) allowed one run on three hits and three walks in seven innings, striking out eight. Kansas City led 1-0 before scoring seven runs

  • Shapovalov downs Etcheverry, advances to third round at Madrid

    MADRID — Canada's Denis Shapovalov advanced to the third round of the Madrid Open tennis tournament with a 7-6, 6-3 win over Argentina's Tomas Etcheverry on Friday. Shapovalov had to overcome issues with his serve to defeat the 26th-seeded Argentine in two hours three minutes. The 25-year-old from Richmond Hill, Ont., hit into 12 double faults and only landed 58 per cent of his first serves. But he had eight aces, compared to one for Etcheverry, and converted three break points to Etcheverry's t

  • Sunak is right to put Britain on a war footing. Its meaning goes beyond defence

    It is notoriously hard to predict a war. This week, in Warsaw (the right location), Rishi Sunak said we must put our defences “on a war footing”.

  • ‘It’s an expression of emotion’: Pro-Palestine mural under review by London council

    Council tells resident of Redbridge that artwork had been subject of complaints from pro-Israel lawyers

  • Bogotá’s Signature Soup Packs in 3 Kinds of Potatoes

    Here's how ajiaco became the signature dish of Colombia's capital — and where to taste it.

  • Sharon Stone on humanitarianism: You don’t save lives winning a Golden Globe

    The actress became a Nobel Laureate in 2013, after receiving the Peace Summit Award.

  • S&P 500 Q1 earnings estimated growth improves; stocks up for week

    U.S. first-quarter estimated earnings growth is looking stronger at nearly the halfway mark of the reporting period, with corporate results giving a boost to stocks this week after recent weakness. S&P 500 year-over-year earnings growth for the first quarter of 2024 is now seen at 5.6%, according to LSEG data on Friday. The latest estimate is based on results from 229 of the S&P 500 companies and forecasts for the rest, with about 78% of reports beating analysts' earnings expectations.

  • Minister tells Moncton school district he's repealing its gender identity policy

    New Brunswick's education minister has told a Moncton-area school district that he is repealing its policy on sexual orientation and gender identity to bring the district in line with the province's approach.Hogan had given the Anglophone East district education council until March 29 to repeal its Policy 1.7, which set out how it would implement the province's Policy 713. The DEC didn't comply, and on April 22 Hogan wrote telling chair Harry Doyle that he was repealing the district policy and o

  • Oceanside Pier fire contained, cause of blaze under investigation

    While crews were able to contain the fire that damaged a section of the Oceanside Pier, the cause of the fire remains unknown.

  • Month after announcement, RFK Jr.'s running mate, Nicole Shanahan, remains in the shadows

    When Robert F. Kennedy Jr. unveiled California lawyer Nicole Shanahan as his running mate in late March, it seemed to trigger the start of a new and exciting phase of his long shot independent presidential bid: "Kennedy '24" signs suddenly made room for a second name, which water bottles and teddy bears sold on the campaign's website within minutes of the Oakland announcement showcased.

  • A California bill aiming to ban confidentiality agreements when negotiating legislation fails

    SACRAMENTO, Calif. (AP) — A bill that sought to ban the use of confidentiality agreements when negotiating potential laws in California has failed to pass a state legislative committee. The proposal by Republican Assemblymember Vince Fong failed to get enough votes to pass out of the Assembly Elections Committee on Thursday. Two Republicans voted for the bill while Democratic Assemblymember Gail Pellerin, the committee chair, voted against it. Five other Democrats on the committee did not vote.

  • Ice Spice Joins Cash Cobain for Remix of Hit 'Fisherrr' — Watch the Music Video!

    The track marks the Bronx MC's first feature since assisting Taylor Swift on her "Karma" remix in 2023

  • Yen hits fresh multi-decade low

    The yen (JPY=X) has hit a more than 30-year low against the US dollar. It comes after the Bank of Japan left room to raise rates following its latest policy meeting. Yahoo Finance's Jared Blikre and Julie Hyman break down the currency movements. For more expert insight and the latest market action, click here to watch this full episode of Market Domination. This post was written by Stephanie Mikulich.