Stock Analysis

What Can The Trends At LaserBond (ASX:LBL) Tell Us About Their Returns?

ASX:LBL
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If you're looking for a multi-bagger, there's a few things to keep an eye out for. One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing amount of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. With that in mind, we've noticed some promising trends at LaserBond (ASX:LBL) so let's look a bit deeper.

Return On Capital Employed (ROCE): What is it?

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. Analysts use this formula to calculate it for LaserBond:

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

0.19 = AU$3.5m ÷ (AU$24m - AU$4.6m) (Based on the trailing twelve months to June 2020).

Therefore, LaserBond has an ROCE of 19%. In absolute terms, that's a satisfactory return, but compared to the Machinery industry average of 11% it's much better.

View our latest analysis for LaserBond

roce
ASX:LBL Return on Capital Employed February 9th 2021

In the above chart we have measured LaserBond'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 LaserBond here for free.

What The Trend Of ROCE Can Tell Us

The trends we've noticed at LaserBond are quite reassuring. Over the last five years, returns on capital employed have risen substantially to 19%. Basically the business is earning more per dollar of capital invested and in addition to that, 168% more capital is being employed now too. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, a combination that's common among multi-baggers.

In Conclusion...

All in all, it's terrific to see that LaserBond is reaping the rewards from prior investments and is growing its capital base. Since the stock has returned a staggering 691% to shareholders over the last five years, it looks like investors are recognizing these changes. So given the stock has proven it has promising trends, it's worth researching the company further to see if these trends are likely to persist.

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

While LaserBond 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. 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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