Kempower Oyj (HEL:KEMPOWR) Might Have The Makings Of A Multi-Bagger

If you're looking for a multi-bagger, there's a few things to keep an eye out for. 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. With that in mind, we've noticed some promising trends at Kempower Oyj (HEL:KEMPOWR) so let's look a bit deeper.

Return On Capital Employed (ROCE): What Is It?

For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. The formula for this calculation on Kempower Oyj is:

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

0.18 = €26m ÷ (€213m - €72m) (Based on the trailing twelve months to June 2023).

So, Kempower Oyj has an ROCE of 18%. On its own, that's a standard return, however it's much better than the 14% generated by the Electrical industry.

Check out our latest analysis for Kempower Oyj

Above you can see how the current ROCE for Kempower Oyj 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 Kempower Oyj here for free.

The Trend Of ROCE

Kempower Oyj has recently broken into profitability so their prior investments seem to be paying off. The company was generating losses three years ago, but now it's earning 18% which is a sight for sore eyes. In addition to that, Kempower Oyj is employing 6,111% more capital than previously which is expected of a company that's trying to break into profitability. This can tell us that the company has plenty of reinvestment opportunities that are able to generate higher returns.

What We Can Learn From Kempower Oyj's ROCE

In summary, it's great to see that Kempower Oyj has managed to break into profitability and is continuing to reinvest in its business. Since the stock has returned a solid 97% to shareholders over the last year, it's fair to say investors are beginning to recognize these changes. Therefore, we think it would be worth your time to check if these trends are going to continue.

If you'd like to know about the risks facing Kempower Oyj, we've discovered 2 warning signs that you should be aware of.

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.