Is CommsChoice Group (ASX:CCG) A Future 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. 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 CommsChoice Group (ASX:CCG) so let's look a bit deeper.

What is 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 CommsChoice Group:

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

0.099 = AU$1.6m ÷ (AU$20m - AU$3.9m) (Based on the trailing twelve months to June 2020).

So, CommsChoice Group has an ROCE of 9.9%. On its own that's a low return on capital but it's in line with the industry's average returns of 9.9%.

Check out our latest analysis for CommsChoice Group

Historical performance is a great place to start when researching a stock so above you can see the gauge for CommsChoice Group's ROCE against it's prior returns. If you want to delve into the historical earnings, revenue and cash flow of CommsChoice Group, check out these free graphs here.

How Are Returns Trending?

We're delighted to see that CommsChoice Group is reaping rewards from its investments and has now broken into profitability. While the business is profitable now, it used to be incurring losses on invested capital two years ago. Additionally, the business is utilizing 48% less capital than it was two years ago, and taken at face value, that can mean the company needs less funds at work to get a return. This could potentially mean that the company is selling some of its assets.

What We Can Learn From CommsChoice Group's ROCE

In the end, CommsChoice Group has proven it's capital allocation skills are good with those higher returns from less amount of capital. And investors seem to expect more of this going forward, since the stock has rewarded shareholders with a 48% return over the last year. In light of that, we think it's worth looking further into this stock because if CommsChoice Group can keep these trends up, it could have a bright future ahead.

If you'd like to know about the risks facing CommsChoice Group, we've discovered 2 warning signs that you should be aware of.

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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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