Return Trends At Stratec (ETR:SBS) Aren't Appealing

If you're looking for a multi-bagger, there's a few things to keep an eye out for. Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base 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. Although, when we looked at Stratec (ETR:SBS), it didn't seem to tick all of these boxes.

Return On Capital Employed (ROCE): What Is It?

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. To calculate this metric for Stratec, this is the formula:

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

0.095 = €32m ÷ (€406m - €70m) (Based on the trailing twelve months to March 2023).

Thus, Stratec has an ROCE of 9.5%. On its own that's a low return on capital but it's in line with the industry's average returns of 9.5%.

See our latest analysis for Stratec

In the above chart we have measured Stratec'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 Stratec.

So How Is Stratec's ROCE Trending?

In terms of Stratec's historical ROCE trend, it doesn't exactly demand attention. The company has consistently earned 9.5% for the last five years, and the capital employed within the business has risen 46% 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

Long story short, while Stratec has been reinvesting its capital, the returns that it's generating haven't increased. And investors appear hesitant that the trends will pick up because the stock has fallen 15% in the last five years. Therefore based on the analysis done in this article, we don't think Stratec has the makings of a multi-bagger.

One more thing to note, we've identified 2 warning signs with Stratec and understanding these should be part of your investment process.

While Stratec 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. 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.