Erlebnis Akademie (FRA:EAD) Might Have The Makings Of A Multi-Bagger

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? 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. 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 looked at Erlebnis Akademie (FRA:EAD) and its trend of ROCE, we really 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. Analysts use this formula to calculate it for Erlebnis Akademie:

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

0.051 = €2.4m ÷ (€49m - €1.7m) (Based on the trailing twelve months to September 2020).

Thus, Erlebnis Akademie has an ROCE of 5.1%. Ultimately, that's a low return and it under-performs the Hospitality industry average of 11%.

See our latest analysis for Erlebnis Akademie

Above you can see how the current ROCE for Erlebnis Akademie compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like to see what analysts are forecasting going forward, you should check out our free report for Erlebnis Akademie.

How Are Returns Trending?

We're glad to see that ROCE is heading in the right direction, even if it is still low at the moment. Over the last five years, returns on capital employed have risen substantially to 5.1%. The amount of capital employed has increased too, by 323%. So we're very much inspired by what we're seeing at Erlebnis Akademie thanks to its ability to profitably reinvest capital.

Our Take On Erlebnis Akademie's ROCE

A company that is growing its returns on capital and can consistently reinvest in itself is a highly sought after trait, and that's what Erlebnis Akademie has. And with the stock having performed exceptionally well over the last five years, these patterns are being accounted for by investors. So given the stock has proven it has promising trends, it's worth researching the company further to see if these trends are likely to persist.

Erlebnis Akademie does have some risks, we noticed 2 warning signs (and 1 which doesn't sit too well with us) we think you should know about.

While Erlebnis Akademie 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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