Oberstdorfer Bergbahn (MUN:KVO) Is Doing The Right Things To Multiply Its Share Price

What are the early trends we should look for to identify a stock that could multiply in value over the long term? 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. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. Speaking of which, we noticed some great changes in Oberstdorfer Bergbahn's (MUN:KVO) returns on capital, so let's have a look.

Understanding Return On Capital Employed (ROCE)

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. To calculate this metric for Oberstdorfer Bergbahn, this is the formula:

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

0.058 = €601k ÷ (€12m - €1.8m) (Based on the trailing twelve months to November 2019).

Therefore, Oberstdorfer Bergbahn has an ROCE of 5.8%. Ultimately, that's a low return and it under-performs the Hospitality industry average of 11%.

View our latest analysis for Oberstdorfer Bergbahn

Historical performance is a great place to start when researching a stock so above you can see the gauge for Oberstdorfer Bergbahn's ROCE against it's prior returns. If you're interested in investigating Oberstdorfer Bergbahn's past further, check out this free graph of past earnings, revenue and cash flow.

The Trend Of ROCE

While in absolute terms it isn't a high ROCE, it's promising to see that it has been moving in the right direction. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 5.8%. The amount of capital employed has increased too, by 114%. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, a combination that's common among multi-baggers.

In Conclusion...

All in all, it's terrific to see that Oberstdorfer Bergbahn is reaping the rewards from prior investments and is growing its capital base. Since the stock has returned a solid 66% to shareholders over the last five years, it's fair to say investors are beginning to recognize these changes. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.

Since virtually every company faces some risks, it's worth knowing what they are, and we've spotted 3 warning signs for Oberstdorfer Bergbahn (of which 1 is significant!) that you should know about.

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

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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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