Does Mineralbrunnen Überkingen-Teinach GmbH KGaA (FRA:MUT) Have The Makings Of A Multi-Bagger?

What trends should we look for it we want to identify stocks that can multiply in value over the long term? Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. 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 Mineralbrunnen Überkingen-Teinach GmbH KGaA's (FRA:MUT) returns on capital, so let's have a look.

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

For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. To calculate this metric for Mineralbrunnen Überkingen-Teinach GmbH KGaA, this is the formula:

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

0.067 = €8.7m ÷ (€144m - €14m) (Based on the trailing twelve months to June 2020).

Therefore, Mineralbrunnen Überkingen-Teinach GmbH KGaA has an ROCE of 6.7%. Even though it's in line with the industry average of 6.7%, it's still a low return by itself.

View our latest analysis for Mineralbrunnen Überkingen-Teinach GmbH KGaA

Historical performance is a great place to start when researching a stock so above you can see the gauge for Mineralbrunnen Überkingen-Teinach GmbH KGaA's ROCE against it's prior returns. If you'd like to look at how Mineralbrunnen Überkingen-Teinach GmbH KGaA 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

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 6.7%. The amount of capital employed has increased too, by 37%. So we're very much inspired by what we're seeing at Mineralbrunnen Überkingen-Teinach GmbH KGaA thanks to its ability to profitably reinvest capital.

What We Can Learn From Mineralbrunnen Überkingen-Teinach GmbH KGaA's ROCE

In summary, it's great to see that Mineralbrunnen Überkingen-Teinach GmbH KGaA can compound returns by consistently reinvesting capital at increasing rates of return, because these are some of the key ingredients of those highly sought after multi-baggers. Investors may not be impressed by the favorable underlying trends yet because over the last five years the stock has only returned 16% to shareholders. Given that, we'd look further into this stock in case it has more traits that could make it multiply in the long term.

One more thing to note, we've identified 2 warning signs with Mineralbrunnen Überkingen-Teinach GmbH KGaA and understanding these should be part of your investment process.

While Mineralbrunnen Überkingen-Teinach GmbH KGaA 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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