Returns On Capital Are A Standout For Kardex Holding (VTX:KARN)

There are a few key trends to look for if we want to identify the next multi-bagger. Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. And in light of that, the trends we're seeing at Kardex Holding's (VTX:KARN) look very promising so lets take a look.

Return On Capital Employed (ROCE): What is it?

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. The formula for this calculation on Kardex Holding is:

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

0.32 = €60m ÷ (€294m - €105m) (Based on the trailing twelve months to June 2021).

Therefore, Kardex Holding has an ROCE of 32%. In absolute terms that's a great return and it's even better than the Machinery industry average of 9.9%.

See our latest analysis for Kardex Holding

Above you can see how the current ROCE for Kardex Holding 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 Kardex Holding here for free.

What Does the ROCE Trend For Kardex Holding Tell Us?

Kardex Holding has not disappointed with their ROCE growth. The figures show that over the last five years, ROCE has grown 25% whilst employing roughly the same amount of capital. So it's likely that the business is now reaping the full benefits of its past investments, since the capital employed hasn't changed considerably. The company is doing well in that sense, and it's worth investigating what the management team has planned for long term growth prospects.

The Bottom Line On Kardex Holding's ROCE

To bring it all together, Kardex Holding has done well to increase the returns it's generating from its capital employed. And a remarkable 319% total return over the last five years tells us that investors are expecting more good things to come in the future. In light of that, we think it's worth looking further into this stock because if Kardex Holding can keep these trends up, it could have a bright future ahead.

While Kardex Holding looks impressive, no company is worth an infinite price. The intrinsic value infographic in our free research report helps visualize whether KARN is currently trading for a fair price.

High returns are a key ingredient to strong performance, so check out our free list ofstocks earning high returns on equity with solid balance sheets.

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.

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