Solaria Energía y Medio Ambiente (BME:SLR) Is Doing The Right Things To Multiply Its Share Price

If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out for. In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. So on that note, Solaria Energía y Medio Ambiente (BME:SLR) looks quite promising in regards to its trends of return on capital.

What Is Return On Capital Employed (ROCE)?

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 Solaria Energía y Medio Ambiente is:

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

0.10 = €160m ÷ (€1.8b - €206m) (Based on the trailing twelve months to June 2024).

So, Solaria Energía y Medio Ambiente has an ROCE of 10%. In absolute terms, that's a pretty normal return, and it's somewhat close to the Renewable Energy industry average of 8.6%.

See our latest analysis for Solaria Energía y Medio Ambiente

In the above chart we have measured Solaria Energía y Medio Ambiente'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 Solaria Energía y Medio Ambiente .

The Trend Of ROCE

Investors would be pleased with what's happening at Solaria Energía y Medio Ambiente. Over the last five years, returns on capital employed have risen substantially to 10%. Basically the business is earning more per dollar of capital invested and in addition to that, 299% more capital is being employed now too. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.

Our Take On Solaria Energía y Medio Ambiente's ROCE

To sum it up, Solaria Energía y Medio Ambiente has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. Since the stock has only returned 38% to shareholders over the last five years, the promising fundamentals may not be recognized yet by investors. So exploring more about this stock could uncover a good opportunity, if the valuation and other metrics stack up.

If you want to know some of the risks facing Solaria Energía y Medio Ambiente we've found 2 warning signs (1 is a bit unpleasant!) that you should be aware of before investing here.

While Solaria Energía y Medio Ambiente 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.