Are Investors Overlooking Returns On Capital At Questor Technology (CVE:QST)?

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base 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. With that in mind, the ROCE of Questor Technology (CVE:QST) looks attractive right now, so lets see what the trend of returns can tell us.

What is 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. To calculate this metric for Questor Technology, this is the formula:

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

0.23 = CA$8.9m ÷ (CA$41m - CA$2.1m) (Based on the trailing twelve months to March 2020).

Therefore, Questor Technology has an ROCE of 23%. In absolute terms that's a great return and it's even better than the Energy Services industry average of 14%.

View our latest analysis for Questor Technology

Above you can the how the current ROCE for Questor Technology's compares to it's prior returns on capital, but you can only tell so much from the past. If you're interested, you can view the analysts predictions in our free report on analyst forecasts for the company.

How Are Returns Trending?

Questor Technology deserves to be commended in regards to it's returns. The company has consistently earned 23% for the last five years, and the capital employed within the business has risen 154% in that time. Returns like this are the envy of most businesses and given they have repeatedly reinvested at these rates, that's even better. If Questor Technology can keep this up, we'd be very optimistic about its future.

What We Can Learn From Questor Technology's ROCE

In summary, we're delighted to see that Questor Technology has been compounding returns by reinvesting at consistently high rates of return as these are common traits of a multi-bagger. However, despite the favorable fundamentals, the stock has fallen 23% over the last five years, so there might be an opportunity here for astute investors. For that reason, savvy investors might want to look further into this company in case it's a prime investment.

If you'd like to know more about Questor Technology, we've spotted 4 warning signs, and 1 of them makes us a bit uncomfortable.

If you want to search for more stocks that have been earning high returns, check out this free list of stocks with solid balance sheets that are also earning 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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