The Return Trends At Ten Sixty Four (ASX:X64) Look Promising

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look 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. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. So when we looked at Ten Sixty Four (ASX:X64) and its trend of ROCE, we really liked what we saw.

Understanding Return On Capital Employed (ROCE)

For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. Analysts use this formula to calculate it for Ten Sixty Four:

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

0.10 = US$22m ÷ (US$228m - US$18m) (Based on the trailing twelve months to June 2022).

Thus, Ten Sixty Four has an ROCE of 10%. By itself that's a normal return on capital and it's in line with the industry's average returns of 10.0%.

View our latest analysis for Ten Sixty Four

Historical performance is a great place to start when researching a stock so above you can see the gauge for Ten Sixty Four's ROCE against it's prior returns. If you'd like to look at how Ten Sixty Four 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

We're delighted to see that Ten Sixty Four is reaping rewards from its investments and is now generating some pre-tax profits. The company was generating losses five years ago, but now it's earning 10% which is a sight for sore eyes. And unsurprisingly, like most companies trying to break into the black, Ten Sixty Four is utilizing 42% more capital than it was five years ago. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, both common traits of a multi-bagger.

Our Take On Ten Sixty Four's ROCE

Long story short, we're delighted to see that Ten Sixty Four's reinvestment activities have paid off and the company is now profitable. And investors seem to expect more of this going forward, since the stock has rewarded shareholders with a 69% return over the last five years. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.

Ten Sixty Four does have some risks, we noticed 5 warning signs (and 1 which is a bit unpleasant) we think you should know about.

While Ten Sixty Four 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.