The Trends At Pfeiffer Vacuum Technology (ETR:PFV) That You Should Know About

There are a few key trends to look for if we want to identify the next multi-bagger. 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. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. In light of that, when we looked at Pfeiffer Vacuum Technology (ETR:PFV) and its ROCE trend, we weren't exactly thrilled.

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. To calculate this metric for Pfeiffer Vacuum Technology, this is the formula:

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

0.10 = €54m ÷ (€659m - €122m) (Based on the trailing twelve months to September 2020).

Thus, Pfeiffer Vacuum Technology has an ROCE of 10%. On its own, that's a standard return, however it's much better than the 6.3% generated by the Machinery industry.

Check out 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're interested, you can view the analysts predictions in our free report on analyst forecasts for the company.

What The Trend Of ROCE Can Tell Us

On the surface, the trend of ROCE at Pfeiffer Vacuum Technology doesn't inspire confidence. To be more specific, ROCE has fallen from 16% over the last five years. Meanwhile, the business is utilizing more capital but this hasn't moved the needle much in terms of sales in the past 12 months, so this could reflect longer term investments. It may take some time before the company starts to see any change in earnings from these investments.

What We Can Learn From Pfeiffer Vacuum Technology's ROCE

To conclude, we've found that Pfeiffer Vacuum Technology is reinvesting in the business, but returns have been falling. Yet to long term shareholders the stock has gifted them an incredible 137% return in the last five years, so the market appears to be rosy about its future. Ultimately, if the underlying trends persist, we wouldn't hold our breath on it being a multi-bagger going forward.

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 may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.

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This article by Simply Wall St is general in nature. 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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