LleidaNetworks Serveis Telemàtics (BME:LLN) Might Have The Makings Of A Multi-Bagger

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's amount of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. Speaking of which, we noticed some great changes in LleidaNetworks Serveis Telemàtics' (BME:LLN) returns on capital, so let's have a look.

What is 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. The formula for this calculation on LleidaNetworks Serveis Telemàtics is:

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

0.15 = €1.4m ÷ (€13m - €3.9m) (Based on the trailing twelve months to December 2020).

Therefore, LleidaNetworks Serveis Telemàtics has an ROCE of 15%. In absolute terms, that's a satisfactory return, but compared to the Telecom industry average of 8.4% it's much better.

See our latest analysis for LleidaNetworks Serveis Telemàtics

In the above chart we have measured LleidaNetworks Serveis Telemàtics' 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 LleidaNetworks Serveis Telemàtics here for free.

What Can We Tell From LleidaNetworks Serveis Telemàtics' ROCE Trend?

Shareholders will be relieved that LleidaNetworks Serveis Telemàtics has broken into profitability. While the business was unprofitable in the past, it's now turned things around and is earning 15% on its capital. On top of that, what's interesting is that the amount of capital being employed has remained steady, so the business hasn't needed to put any additional money to work to generate these higher returns. With no noticeable increase in capital employed, it's worth knowing what the company plans on doing going forward in regards to reinvesting and growing the business. After all, a company can only become a long term multi-bagger if it continually reinvests in itself at high rates of return.

The Bottom Line On LleidaNetworks Serveis Telemàtics' ROCE

To sum it up, LleidaNetworks Serveis Telemàtics is collecting higher returns from the same amount of capital, and that's impressive. Since the stock has returned a staggering 821% to shareholders over the last five years, it looks like investors are recognizing these changes. In light of that, we think it's worth looking further into this stock because if LleidaNetworks Serveis Telemàtics can keep these trends up, it could have a bright future ahead.

One more thing, we've spotted 1 warning sign facing LleidaNetworks Serveis Telemàtics that you might find interesting.

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