Slowing Rates Of Return At Pfeiffer Vacuum Technology (ETR:PFV) Leave Little Room For Excitement

To find a multi-bagger stock, what are the underlying trends we should look for in a business? Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. So, when we ran our eye over Pfeiffer Vacuum Technology's (ETR:PFV) trend of ROCE, we liked what we saw.

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

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. Analysts use this formula to calculate it for Pfeiffer Vacuum Technology:

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

0.16 = €92m ÷ (€743m - €182m) (Based on the trailing twelve months to September 2021).

Therefore, Pfeiffer Vacuum Technology has an ROCE of 16%. On its own, that's a standard return, however it's much better than the 8.3% generated by the Machinery industry.

See our latest analysis for Pfeiffer Vacuum Technology

Above you can see how the current ROCE for Pfeiffer Vacuum Technology compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like, you can check out the forecasts from the analysts covering Pfeiffer Vacuum Technology here for free.

What The Trend Of ROCE Can Tell Us

While the returns on capital are good, they haven't moved much. The company has consistently earned 16% for the last five years, and the capital employed within the business has risen 54% in that time. 16% is a pretty standard return, and it provides some comfort knowing that Pfeiffer Vacuum Technology has consistently earned this amount. Over long periods of time, returns like these might not be too exciting, but with consistency they can pay off in terms of share price returns.

The Bottom Line On Pfeiffer Vacuum Technology's ROCE

The main thing to remember is that Pfeiffer Vacuum Technology has proven its ability to continually reinvest at respectable rates of return. And the stock has done incredibly well with a 179% return over the last five years, so long term investors are no doubt ecstatic with that result. So while the positive underlying trends may be accounted for by investors, we still think this stock is worth looking into further.

Pfeiffer Vacuum Technology could be trading at an attractive price in other respects, so you might find our free intrinsic value estimation on our platform quite valuable.

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

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.

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