Shareholders Are Optimistic That Pfeiffer Vacuum Technology (ETR:PFV) Will Multiply In Value

To find a multi-bagger stock, what are the underlying trends we should look for in a business? Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding 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. That's why when we briefly looked at Pfeiffer Vacuum Technology's (ETR:PFV) ROCE trend, we were very happy with what we saw.

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

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 Pfeiffer Vacuum Technology is:

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

0.21 = €119m ÷ (€745m - €179m) (Based on the trailing twelve months to March 2022).

Therefore, Pfeiffer Vacuum Technology has an ROCE of 21%. That's a fantastic return and not only that, it outpaces the average of 8.6% earned by companies in a similar industry.

See our latest analysis for Pfeiffer Vacuum Technology

In the above chart we have measured Pfeiffer Vacuum Technology'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 Pfeiffer Vacuum Technology here for free.

What Can We Tell From Pfeiffer Vacuum Technology's ROCE Trend?

In terms of Pfeiffer Vacuum Technology's history of ROCE, it's quite impressive. Over the past five years, ROCE has remained relatively flat at around 21% and the business has deployed 46% 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 Pfeiffer Vacuum Technology can keep this up, we'd be very optimistic about its future.

The Bottom Line On Pfeiffer Vacuum Technology's ROCE

In summary, we're delighted to see that Pfeiffer Vacuum Technology has been compounding returns by reinvesting at consistently high rates of return, as these are common traits of a multi-bagger. And given the stock has only risen 18% over the last five years, we'd suspect the market is beginning to recognize these trends. That's why it could be worth your time looking into this stock further to discover if it has more traits of a multi-bagger.

If you'd like to know about the risks facing Pfeiffer Vacuum Technology, we've discovered 2 warning signs that 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.