ABO Wind (HMSE:AB9) Has Some Way To Go To Become A Multi-Bagger

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base 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. That's why when we briefly looked at ABO Wind's (HMSE:AB9) ROCE trend, we were pretty happy with what we saw.

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. The formula for this calculation on ABO Wind is:

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

0.16 = €33m ÷ (€249m - €40m) (Based on the trailing twelve months to December 2020).

Therefore, ABO Wind has an ROCE of 16%. On its own, that's a standard return, however it's much better than the 3.6% generated by the Renewable Energy industry.

See our latest analysis for ABO Wind

Above you can see how the current ROCE for ABO Wind 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 ABO Wind here for free.

So How Is ABO Wind's ROCE Trending?

The trend of ROCE doesn't stand out much, but returns on a whole are decent. The company has employed 111% more capital in the last five years, and the returns on that capital have remained stable at 16%. 16% is a pretty standard return, and it provides some comfort knowing that ABO Wind has consistently earned this amount. Over long periods of time, returns like these might not be too exciting, but with consistency they can pay off in terms of share price returns.

The Bottom Line

To sum it up, ABO Wind has simply been reinvesting capital steadily, at those decent rates of return. And the stock has done incredibly well with a 258% return over the last three years, so long term investors are no doubt ecstatic with that result. So while investors seem to be recognizing these promising trends, we still believe the stock deserves further research.

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

While ABO Wind may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.

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