There's Been No Shortage Of Growth Recently For SOCEP's (BVB:SOCP) Returns On Capital

To find a multi-bagger stock, what are the underlying trends we should look for in a business? In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. So on that note, SOCEP (BVB:SOCP) looks quite promising in regards to its trends of return on capital.

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 SOCEP, this is the formula:

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

0.16 = RON77m ÷ (RON546m - RON59m) (Based on the trailing twelve months to September 2023).

So, SOCEP has an ROCE of 16%. In absolute terms, that's a satisfactory return, but compared to the Infrastructure industry average of 9.8% it's much better.

Check out our latest analysis for SOCEP

Historical performance is a great place to start when researching a stock so above you can see the gauge for SOCEP's ROCE against it's prior returns. If you'd like to look at how SOCEP has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.

What The Trend Of ROCE Can Tell Us

The trends we've noticed at SOCEP are quite reassuring. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 16%. Basically the business is earning more per dollar of capital invested and in addition to that, 162% more capital is being employed now too. So we're very much inspired by what we're seeing at SOCEP thanks to its ability to profitably reinvest capital.

The Key Takeaway

In summary, it's great to see that SOCEP can compound returns by consistently reinvesting capital at increasing rates of return, because these are some of the key ingredients of those highly sought after multi-baggers. And with the stock having performed exceptionally well over the last five years, these patterns are being accounted for by investors. Therefore, we think it would be worth your time to check if these trends are going to continue.

One more thing to note, we've identified 2 warning signs with SOCEP and understanding these should be part of your investment process.

While SOCEP isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

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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.