Spielvereinigung Unterhaching Fußball GmbH KGaA (ETR:S6P) Might Have The Makings Of A Multi-Bagger

If you're looking for a multi-bagger, there's a few things to keep an eye out for. Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount 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. So on that note, Spielvereinigung Unterhaching Fußball GmbH KGaA (ETR:S6P) looks quite promising in regards to its trends of return on capital.

Understanding Return On Capital Employed (ROCE)

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. The formula for this calculation on Spielvereinigung Unterhaching Fußball GmbH KGaA is:

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

0.11 = €1.1m ÷ (€12m - €2.5m) (Based on the trailing twelve months to June 2022).

Therefore, Spielvereinigung Unterhaching Fußball GmbH KGaA has an ROCE of 11%. That's a relatively normal return on capital, and it's around the 12% generated by the Entertainment industry.

Check out our latest analysis for Spielvereinigung Unterhaching Fußball GmbH KGaA

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

So How Is Spielvereinigung Unterhaching Fußball GmbH KGaA's ROCE Trending?

Spielvereinigung Unterhaching Fußball GmbH KGaA has recently broken into profitability so their prior investments seem to be paying off. Shareholders would no doubt be pleased with this because the business was loss-making three years ago but is is now generating 11% on its capital. In addition to that, Spielvereinigung Unterhaching Fußball GmbH KGaA is employing 337% 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.

One more thing to note, Spielvereinigung Unterhaching Fußball GmbH KGaA has decreased current liabilities to 21% of total assets over this period, which effectively reduces the amount of funding from suppliers or short-term creditors. This tells us that Spielvereinigung Unterhaching Fußball GmbH KGaA has grown its returns without a reliance on increasing their current liabilities, which we're very happy with.

Our Take On Spielvereinigung Unterhaching Fußball GmbH KGaA's ROCE

Overall, Spielvereinigung Unterhaching Fußball GmbH KGaA gets a big tick from us thanks in most part to the fact that it is now profitable and is reinvesting in its business. Astute investors may have an opportunity here because the stock has declined 40% in the last three years. With that in mind, we believe the promising trends warrant this stock for further investigation.

Spielvereinigung Unterhaching Fußball GmbH KGaA does come with some risks though, we found 3 warning signs in our investment analysis, and 1 of those shouldn't be ignored...

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive returns on equity.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.