Does Klassik Radio (ETR:KA8) Have The Makings Of A Multi-Bagger?

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding 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. So on that note, Klassik Radio (ETR:KA8) looks quite promising in regards to its trends of return on capital.

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 Klassik Radio, this is the formula:

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

0.064 = €728k ÷ (€18m - €6.3m) (Based on the trailing twelve months to June 2020).

So, Klassik Radio has an ROCE of 6.4%. Ultimately, that's a low return and it under-performs the Media industry average of 12%.

Check out our latest analysis for Klassik Radio

Above you can see how the current ROCE for Klassik Radio 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 Klassik Radio.

How Are Returns Trending?

We're delighted to see that Klassik Radio is reaping rewards from its investments and is now generating some pre-tax profits. The company was generating losses five years ago, but now it's earning 6.4% which is a sight for sore eyes. In addition to that, Klassik Radio is employing 94% more capital than previously which is expected of a company that's trying to break into profitability. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, both common traits of a multi-bagger.

The Key Takeaway

In summary, it's great to see that Klassik Radio has managed to break into profitability and is continuing to reinvest in its business. Since the stock has returned a staggering 110% to shareholders over the last five years, it looks like investors are recognizing these changes. Therefore, we think it would be worth your time to check if these trends are going to continue.

On a separate note, we've found 3 warning signs for Klassik Radio you'll probably want to know about.

While Klassik Radio 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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