Arteche Lantegi Elkartea (BME:ART) Has Some Way To Go To Become A Multi-Bagger

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing 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, when we ran our eye over Arteche Lantegi Elkartea's (BME:ART) trend of ROCE, we liked 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 Arteche Lantegi Elkartea is:

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

0.16 = €23m ÷ (€328m - €181m) (Based on the trailing twelve months to December 2023).

Thus, Arteche Lantegi Elkartea has an ROCE of 16%. In absolute terms, that's a satisfactory return, but compared to the Electrical industry average of 13% it's much better.

Check out our latest analysis for Arteche Lantegi Elkartea

In the above chart we have measured Arteche Lantegi Elkartea's prior ROCE against its prior performance, but the future is arguably more important. If you'd like to see what analysts are forecasting going forward, you should check out our free analyst report for Arteche Lantegi Elkartea .

What Does the ROCE Trend For Arteche Lantegi Elkartea Tell Us?

The trend of ROCE doesn't stand out much, but returns on a whole are decent. Over the past four years, ROCE has remained relatively flat at around 16% and the business has deployed 86% more capital into its operations. 16% is a pretty standard return, and it provides some comfort knowing that Arteche Lantegi Elkartea has consistently earned this amount. Stable returns in this ballpark can be unexciting, but if they can be maintained over the long run, they often provide nice rewards to shareholders.

One more thing to note, even though ROCE has remained relatively flat over the last four years, the reduction in current liabilities to 55% of total assets, is good to see from a business owner's perspective. This can eliminate some of the risks inherent in the operations because the business has less outstanding obligations to their suppliers and or short-term creditors than they did previously. Although because current liabilities are still 55%, some of that risk is still prevalent.

The Bottom Line

In the end, Arteche Lantegi Elkartea has proven its ability to adequately reinvest capital at good rates of return. And since the stock has risen strongly over the last year, it appears the market might expect this trend to continue. So while the positive underlying trends may be accounted for by investors, we still think this stock is worth looking into further.

Arteche Lantegi Elkartea could be trading at an attractive price in other respects, so you might find our free intrinsic value estimation for ART on our platform quite valuable.

While Arteche Lantegi Elkartea 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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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.