We Think Enero Group (ASX:EGG) Might Have The DNA Of A Multi-Bagger

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. And in light of that, the trends we're seeing at Enero Group's (ASX:EGG) look very promising so lets take a look.

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. Analysts use this formula to calculate it for Enero Group:

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

0.28 = AU$74m ÷ (AU$382m - AU$117m) (Based on the trailing twelve months to December 2022).

Thus, Enero Group has an ROCE of 28%. In absolute terms that's a great return and it's even better than the Media industry average of 13%.

Check out our latest analysis for Enero Group

Above you can see how the current ROCE for Enero Group compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like, you can check out the forecasts from the analysts covering Enero Group here for free.

What Can We Tell From Enero Group's ROCE Trend?

We like the trends that we're seeing from Enero Group. Over the last five years, returns on capital employed have risen substantially to 28%. The amount of capital employed has increased too, by 124%. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.

The Bottom Line On Enero Group's ROCE

All in all, it's terrific to see that Enero Group is reaping the rewards from prior investments and is growing its capital base. 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 Enero Group can keep these trends up, it could have a bright future ahead.

If you'd like to know about the risks facing Enero Group, we've discovered 3 warning signs that you should be aware of.

If you'd like to see other companies earning high returns, check out our free list of companies earning high returns with solid balance sheets 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.