What underlying trends should we look for in a business to find multi-bagger stocks? First, we would like to see a proven Return on capital employed (ROCE) which is increasing, and second, an expansion Base of capital employed. This basically means that a company has profitable initiatives in which it can continue to reinvest, which is a characteristic of a compounding machine. So on that note, va-q-tech (ETR: VQT) looks promising with respect to its trends in return on capital.
Return on Capital Employed (ROCE): What is it?
If you have not worked with ROCE before, it measures the ‘returns’ (profit before tax) generated by the company from the capital employed in its business. To calculate this metric for va-Q-tec, this is the formula:
Return on Capital Employed = Earnings Before Interest and Taxes (EBIT) (Total Assets – Current Liabilities)
0.0086 = €826k (€132m – €36m) (Based on the following twelve months to September 2021),
therefore, VA-Q-Tech has a ROCE of 0.9%. Overall, it has diminishing returns and outperforms the machinery industry average of 8.8%.
Check out our latest analysis for Va-Q-Tech
In the chart above we’ve measured the va-Q-tec’s past ROCE by its past performance, but the future is arguably more important. If you want to see what analysts are forecasting next, you should check out our free Report for VA-Q-TECH.
So how’s the ROCE of va-Q-tec trending?
The fact that VA-Q-Tech is now earning some pre-tax profit from its prior investments is very encouraging. The company was making losses five years ago but is now earning 0.9% which is a sight for sore eyes. In addition, VA-Q-Tech is employing 42% more capital than before, which is expected from a company that is trying to break into profitability. We like this trend, as it tells us that the company has profitable reinvestment opportunities available to it, and if it continues it could lead to multi-bagger performance.
The Bottom Line on VA-Q-Tech’s ROCE
Overall, VA-Q-Tech has received a great deal of recognition from us, thanks to the fact that it is now profitable and reinvesting in its business. And investors expect it to go further, as the stock has rewarded shareholders with 70% returns over the past five years. In light of that, we think it’s worth looking further into this stock because if VA-Q-Tech can sustain these trends, its future could be bright.
va-Q-tec comes with some risks, however, we found 4 warning signs in our investment analysis, And 2 of them are potentially serious…
Although VA-Q-Tech may not currently earn the highest returns, we have compiled a list of companies that currently earn more than 25% return on equity. check it out free List here.
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This article by Simple Wall St. is general in nature. We only provide commentary based on historical data and analyst forecasts using an unbiased methodology and our articles are not intended to be financial advice. It does not recommend buying or selling any stock, and does not take into account your objectives, or your financial situation. We aim to bring you long-term focused analytics powered by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative content. Simple Wall St does not have a position in any of the stocks mentioned.