Sensirion Holding (VTX:SENS) Might Have The Makings Of A Multi-Bagger

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. 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. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. Speaking of which, we noticed some great changes in Sensirion Holding's (VTX:SENS) returns on capital, so let's have a look.

What Is Return On Capital Employed (ROCE)?

For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. To calculate this metric for Sensirion Holding, this is the formula:

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

0.11 = CHF36m ÷ (CHF349m - CHF30m) (Based on the trailing twelve months to June 2023).

Thus, Sensirion Holding has an ROCE of 11%. In absolute terms, that's a pretty standard return but compared to the Electronic industry average it falls behind.

View our latest analysis for Sensirion Holding

In the above chart we have measured Sensirion 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 Sensirion Holding here for free.

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

We like the trends that we're seeing from Sensirion Holding. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 11%. The amount of capital employed has increased too, by 69%. So we're very much inspired by what we're seeing at Sensirion Holding thanks to its ability to profitably reinvest capital.

Our Take On Sensirion Holding's ROCE

All in all, it's terrific to see that Sensirion Holding is reaping the rewards from prior investments and is growing its capital base. Investors may not be impressed by the favorable underlying trends yet because over the last five years the stock has only returned 7.8% to shareholders. Given that, we'd look further into this stock in case it has more traits that could make it multiply in the long term.

Sensirion Holding does come with some risks though, we found 3 warning signs in our investment analysis, and 1 of those is potentially serious...

While Sensirion Holding isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

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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.