Under The Bonnet, Kardex Holding's (VTX:KARN) Returns Look Impressive

If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out for. One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing amount 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 Kardex Holding's (VTX:KARN) look very promising so lets take a look.

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. The formula for this calculation on Kardex Holding is:

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

0.34 = €59m ÷ (€265m - €90m) (Based on the trailing twelve months to June 2020).

Therefore, Kardex Holding has an ROCE of 34%. That's a fantastic return and not only that, it outpaces the average of 8.1% earned by companies in a similar industry.

Check out our latest analysis for Kardex Holding

In the above chart we have measured Kardex Holding's prior ROCE against its prior performance, but the future is arguably more important. If you'd like, you can check out the forecasts from the analysts covering Kardex Holding here for free.

What Can We Tell From Kardex Holding's ROCE Trend?

The trends we've noticed at Kardex Holding are quite reassuring. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 34%. The company is effectively making more money per dollar of capital used, and it's worth noting that the amount of capital has increased too, by 30%. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.

What We Can Learn From Kardex Holding's ROCE

All in all, it's terrific to see that Kardex Holding is reaping the rewards from prior investments and is growing its capital base. Since the stock has returned a staggering 252% to shareholders over the last five years, it looks like investors are recognizing these changes. Therefore, we think it would be worth your time to check if these trends are going to continue.

One final note, you should learn about the 3 warning signs we've spotted with Kardex Holding (including 1 which doesn't sit too well with us) .

If you want to search for more stocks that have been earning high returns, check out this free list of stocks with solid balance sheets that are also earning high returns on equity.

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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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