Has Nucletron Electronic (FRA:NUC) Got What It Takes To Become A Multi-Bagger?

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's amount of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. Although, when we looked at Nucletron Electronic (FRA:NUC), it didn't seem to tick all of these boxes.

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 Nucletron Electronic, this is the formula:

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

0.084 = €1.1m ÷ (€16m - €2.9m) (Based on the trailing twelve months to June 2020).

Therefore, Nucletron Electronic has an ROCE of 8.4%. In absolute terms, that's a low return but it's around the Trade Distributors industry average of 9.4%.

View our latest analysis for Nucletron Electronic

Historical performance is a great place to start when researching a stock so above you can see the gauge for Nucletron Electronic's ROCE against it's prior returns. If you'd like to look at how Nucletron Electronic has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.

What The Trend Of ROCE Can Tell Us

Over the past five years, Nucletron Electronic's ROCE and capital employed have both remained mostly flat. It's not uncommon to see this when looking at a mature and stable business that isn't re-investing its earnings because it has likely passed that phase of the business cycle. With that in mind, unless investment picks up again in the future, we wouldn't expect Nucletron Electronic to be a multi-bagger going forward.

In Conclusion...

In summary, Nucletron Electronic isn't compounding its earnings but is generating stable returns on the same amount of capital employed. Since the stock has gained an impressive 64% over the last five years, investors must think there's better things to come. Ultimately, if the underlying trends persist, we wouldn't hold our breath on it being a multi-bagger going forward.

If you want to continue researching Nucletron Electronic, you might be interested to know about the 3 warning signs that our analysis has discovered.

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high returns on equity.

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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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