Investors Will Want Ströer SE KGaA's (ETR:SAX) Growth In ROCE To Persist

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. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. So on that note, Ströer SE KGaA (ETR:SAX) looks quite promising in regards to its trends of return on capital.

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

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. The formula for this calculation on Ströer SE KGaA is:

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

0.10 = €203m ÷ (€2.6b - €643m) (Based on the trailing twelve months to December 2021).

Therefore, Ströer SE KGaA has an ROCE of 10%. In absolute terms, that's a pretty standard return but compared to the Media industry average it falls behind.

See our latest analysis for Ströer SE KGaA

In the above chart we have measured Ströer SE KGaA's prior ROCE against its prior performance, but the future is arguably more important. If you'd like, you can check out the forecasts from the analysts covering Ströer SE KGaA here for free.

So How Is Ströer SE KGaA's ROCE Trending?

We like the trends that we're seeing from Ströer SE KGaA. The data shows that returns on capital have increased substantially over the last five years to 10%. The amount of capital employed has increased too, by 54%. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, a combination that's common among multi-baggers.

The Key Takeaway

In summary, it's great to see that Ströer SE 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 9.0% 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.

Ströer SE KGaA does have some risks though, and we've spotted 3 warning signs for Ströer SE KGaA that you might be interested in.

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.