The Return Trends At LaserBond (ASX:LBL) Look Promising
Did you know there are some financial metrics that can provide clues of a potential multi-bagger? Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's amount of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. So on that note, LaserBond (ASX:LBL) looks quite promising in regards to its trends of return on capital.
Understanding Return On Capital Employed (ROCE)
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. Analysts use this formula to calculate it for LaserBond:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.12 = AU$2.8m ÷ (AU$30m - AU$6.1m) (Based on the trailing twelve months to June 2021).
Thus, LaserBond has an ROCE of 12%. On its own, that's a standard return, however it's much better than the 9.4% generated by the Machinery industry.
See our latest analysis for LaserBond
Above you can see how the current ROCE for LaserBond compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like to see what analysts are forecasting going forward, you should check out our free report for LaserBond.
So How Is LaserBond's ROCE Trending?
We're delighted to see that LaserBond is reaping rewards from its investments and is now generating some pre-tax profits. About five years ago the company was generating losses but things have turned around because it's now earning 12% on its capital. In addition to that, LaserBond is employing 253% more capital than previously which is expected of a company that's trying to break into profitability. This can tell us that the company has plenty of reinvestment opportunities that are able to generate higher returns.
What We Can Learn From LaserBond's ROCE
Overall, LaserBond gets a big tick from us thanks in most part to the fact that it is now profitable and is reinvesting in its business. And with the stock having performed exceptionally well over the last five years, these patterns are being accounted for by investors. In light of that, we think it's worth looking further into this stock because if LaserBond can keep these trends up, it could have a bright future ahead.
Like most companies, LaserBond does come with some risks, and we've found 1 warning sign that you should be aware of.
While LaserBond 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.
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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.
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LaserBond Limited, a surface engineering company, engages in the development and application of materials, technologies, and methodologies to enhance operating performance and wear life of capital-intensive machinery components in Australia.
Excellent balance sheet with proven track record.