Many Would Be Jealous Of EMS-CHEMIE HOLDING's (VTX:EMSN) Returns On Capital

To find a multi-bagger stock, what are the underlying trends we should look for in a business? 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. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. Ergo, when we looked at the ROCE trends at EMS-CHEMIE HOLDING (VTX:EMSN), we liked what we saw.

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. Analysts use this formula to calculate it for EMS-CHEMIE HOLDING:

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

0.26 = CHF535m ÷ (CHF2.3b - CHF291m) (Based on the trailing twelve months to June 2020).

Thus, EMS-CHEMIE HOLDING has an ROCE of 26%. In absolute terms that's a great return and it's even better than the Chemicals industry average of 13%.

See our latest analysis for EMS-CHEMIE HOLDING

In the above chart we have measured EMS-CHEMIE 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 EMS-CHEMIE HOLDING here for free.

How Are Returns Trending?

We'd be pretty happy with returns on capital like EMS-CHEMIE HOLDING. The company has employed 29% more capital in the last five years, and the returns on that capital have remained stable at 26%. With returns that high, it's great that the business can continually reinvest its money at such appealing rates of return. If these trends can continue, it wouldn't surprise us if the company became a multi-bagger.

Our Take On EMS-CHEMIE HOLDING's ROCE

In short, we'd argue EMS-CHEMIE HOLDING has the makings of a multi-bagger since its been able to compound its capital at very profitable rates of return. And long term investors would be thrilled with the 129% return they've received over the last five years. So while investors seem to be recognizing these promising trends, we still believe the stock deserves further research.

If you want to continue researching EMS-CHEMIE HOLDING, you might be interested to know about the 1 warning sign that our analysis has discovered.

EMS-CHEMIE HOLDING is not the only stock earning high returns. If you'd like to see more, check out our free list of companies earning high returns on equity with solid fundamentals.

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