Campine (EBR:CAMB) Is Aiming To Keep Up Its Impressive Returns

If you're looking for a multi-bagger, there's a few things to keep an eye out for. Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. With that in mind, the ROCE of Campine (EBR:CAMB) looks attractive right now, so lets see what the trend of returns can tell us.

What Is Return On Capital Employed (ROCE)?

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. To calculate this metric for Campine, this is the formula:

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

0.33 = €20m ÷ (€125m - €64m) (Based on the trailing twelve months to June 2022).

Therefore, Campine has an ROCE of 33%. In absolute terms that's a great return and it's even better than the Metals and Mining industry average of 15%.

View our latest analysis for Campine

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

How Are Returns Trending?

It's hard not to be impressed by Campine's returns on capital. Over the past five years, ROCE has remained relatively flat at around 33% and the business has deployed 132% more capital into its operations. Now considering ROCE is an attractive 33%, this combination is actually pretty appealing because it means the business can consistently put money to work and generate these high returns. If Campine can keep this up, we'd be very optimistic about its future.

One more thing to note, even though ROCE has remained relatively flat over the last five years, the reduction in current liabilities to 51% of total assets, is good to see from a business owner's perspective. Effectively suppliers now fund less of the business, which can lower some elements of risk. Although because current liabilities are still 51%, some of that risk is still prevalent.

In Conclusion...

In short, we'd argue Campine has the makings of a multi-bagger since its been able to compound its capital at very profitable rates of return. And the stock has done incredibly well with a 127% return over the last five years, so long term investors are no doubt ecstatic with that result. So while investors seem to be recognizing these promising trends, we still believe the stock deserves further research.

If you want to know some of the risks facing Campine we've found 5 warning signs (2 are a bit unpleasant!) that you should be aware of before investing here.

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.