AUTO1 Group (ETR:AG1) Is Looking To Continue Growing Its Returns On Capital

There are a few key trends to look for if we want to identify the next multi-bagger. Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base 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. With that in mind, we've noticed some promising trends at AUTO1 Group (ETR:AG1) so let's look a bit deeper.

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Understanding 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. Analysts use this formula to calculate it for AUTO1 Group:

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

0.051 = €81m ÷ (€2.3b - €734m) (Based on the trailing twelve months to March 2025).

So, AUTO1 Group has an ROCE of 5.1%. Ultimately, that's a low return and it under-performs the Specialty Retail industry average of 9.4%.

See our latest analysis for AUTO1 Group

Above you can see how the current ROCE for AUTO1 Group compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like, you can check out the forecasts from the analysts covering AUTO1 Group for free.

What Can We Tell From AUTO1 Group's ROCE Trend?

The fact that AUTO1 Group is now generating some pre-tax profits from its prior investments is very encouraging. The company was generating losses five years ago, but now it's earning 5.1% which is a sight for sore eyes. And unsurprisingly, like most companies trying to break into the black, AUTO1 Group is utilizing 265% more capital than it was five years ago. We like this trend, because it tells us the company has profitable reinvestment opportunities available to it, and if it continues going forward that can lead to a multi-bagger performance.

The Bottom Line On AUTO1 Group's ROCE

To the delight of most shareholders, AUTO1 Group has now broken into profitability. And a remarkable 252% total return over the last three years tells us that investors are expecting more good things to come in the future. Therefore, we think it would be worth your time to check if these trends are going to continue.

If you'd like to know more about AUTO1 Group, we've spotted 3 warning signs, and 2 of them make us uncomfortable.

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.