Eckert & Ziegler Strahlen- und Medizintechnik (ETR:EUZ) Has Some Way To Go To Become A Multi-Bagger

If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out for. Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. However, after briefly looking over the numbers, we don't think Eckert & Ziegler Strahlen- und Medizintechnik (ETR:EUZ) has the makings of a multi-bagger going forward, but let's have a look at why that may be.

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. To calculate this metric for Eckert & Ziegler Strahlen- und Medizintechnik, this is the formula:

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

0.085 = €26m ÷ (€368m - €58m) (Based on the trailing twelve months to June 2022).

So, Eckert & Ziegler Strahlen- und Medizintechnik has an ROCE of 8.5%. In absolute terms, that's a low return and it also under-performs the Medical Equipment industry average of 12%.

See our latest analysis for Eckert & Ziegler Strahlen- und Medizintechnik

In the above chart we have measured Eckert & Ziegler Strahlen- und Medizintechnik's prior ROCE against its prior performance, but the future is arguably more important. If you'd like to see what analysts are forecasting going forward, you should check out our free report for Eckert & Ziegler Strahlen- und Medizintechnik.

How Are Returns Trending?

There are better returns on capital out there than what we're seeing at Eckert & Ziegler Strahlen- und Medizintechnik. The company has consistently earned 8.5% for the last five years, and the capital employed within the business has risen 85% in that time. Given the company has increased the amount of capital employed, it appears the investments that have been made simply don't provide a high return on capital.

The Bottom Line On Eckert & Ziegler Strahlen- und Medizintechnik's ROCE

Long story short, while Eckert & Ziegler Strahlen- und Medizintechnik has been reinvesting its capital, the returns that it's generating haven't increased. Yet to long term shareholders the stock has gifted them an incredible 449% 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.

On a final note, we found 2 warning signs for Eckert & Ziegler Strahlen- und Medizintechnik (1 shouldn't be ignored) you should be aware of.

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. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. 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.