Prabos plus (SEP:PRAB) Might Become A Compounding Machine

What are the early trends we should look for to identify a stock that could multiply in value over the long term? 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 Prabos plus (SEP:PRAB), we liked what we saw.

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. The formula for this calculation on Prabos plus is:

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

0.26 = Kč67m ÷ (Kč301m - Kč44m) (Based on the trailing twelve months to December 2021).

Thus, Prabos plus has an ROCE of 26%. In absolute terms that's a great return and it's even better than the Luxury industry average of 12%.

Check out our latest analysis for Prabos plus

While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you'd like to look at how Prabos plus has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.

SWOT Analysis for Prabos plus

What Does the ROCE Trend For Prabos plus Tell Us?

Prabos plus deserves to be commended in regards to it's returns. Over the past five years, ROCE has remained relatively flat at around 26% and the business has deployed 133% more capital into its operations. Returns like this are the envy of most businesses and given it has repeatedly reinvested at these rates, that's even better. If these trends can continue, it wouldn't surprise us if the company became a multi-bagger.

On a side note, Prabos plus has done well to reduce current liabilities to 15% of total assets over the last five years. This can eliminate some of the risks inherent in the operations because the business has less outstanding obligations to their suppliers and or short-term creditors than they did previously.

The Bottom Line

Prabos plus has demonstrated its proficiency by generating high returns on increasing amounts of capital employed, which we're thrilled about. However, despite the favorable fundamentals, the stock has fallen 42% over the last three years, so there might be an opportunity here for astute investors. That's why we think it'd be worthwhile to look further into this stock given the fundamentals are appealing.

On a final note, we found 4 warning signs for Prabos plus (3 are significant) you should be aware of.

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. 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.