Ontex Group (EBR:ONTEX) Is Doing The Right Things To Multiply Its Share Price

There are a few key trends to look for if we want to identify the next multi-bagger. In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. 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 Ontex Group (EBR:ONTEX) and its trend of ROCE, we really liked what we saw.

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Return On Capital Employed (ROCE): What Is It?

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. The formula for this calculation on Ontex Group is:

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

0.096 = €157m ÷ (€2.4b - €736m) (Based on the trailing twelve months to December 2024).

Therefore, Ontex Group has an ROCE of 9.6%. Ultimately, that's a low return and it under-performs the Personal Products industry average of 13%.

See our latest analysis for Ontex Group

Above you can see how the current ROCE for Ontex Group compares to its prior returns on capital, but there's only so much you can tell from the past. If you're interested, you can view the analysts predictions in our free analyst report for Ontex Group .

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

Ontex Group has not disappointed in regards to ROCE growth. The data shows that returns on capital have increased by 36% over the trailing five years. That's not bad because this tells for every dollar invested (capital employed), the company is increasing the amount earned from that dollar. In regards to capital employed, Ontex Group appears to been achieving more with less, since the business is using 25% less capital to run its operation. Ontex Group may be selling some assets so it's worth investigating if the business has plans for future investments to increase returns further still.

The Bottom Line

In summary, it's great to see that Ontex Group has been able to turn things around and earn higher returns on lower amounts of capital. And since the stock has fallen 43% over the last five years, there might be an opportunity here. With that in mind, we believe the promising trends warrant this stock for further investigation.

One more thing, we've spotted 2 warning signs facing Ontex Group that you might find interesting.

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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.