UPERGY Société Anonyme (EPA:ALUPG) Is Doing The Right Things To Multiply Its Share Price

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. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. With that in mind, we've noticed some promising trends at UPERGY Société Anonyme (EPA:ALUPG) so let's look a bit deeper.

Understanding Return On Capital Employed (ROCE)

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. To calculate this metric for UPERGY Société Anonyme, this is the formula:

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

0.063 = €1.2m ÷ (€32m - €14m) (Based on the trailing twelve months to June 2024).

Therefore, UPERGY Société Anonyme has an ROCE of 6.3%. In absolute terms, that's a low return, but it's much better than the Trade Distributors industry average of 4.4%.

Check out our latest analysis for UPERGY Société Anonyme

Above you can see how the current ROCE for UPERGY Société Anonyme compares to its prior returns on capital, but there's only so much you can tell from the past. If you're interested, you can view the analysts predictions in our free analyst report for UPERGY Société Anonyme .

What The Trend Of ROCE Can Tell Us

UPERGY Société Anonyme has recently broken into profitability so their prior investments seem to be paying off. Shareholders would no doubt be pleased with this because the business was loss-making five years ago but is is now generating 6.3% on its capital. In addition to that, UPERGY Société Anonyme is employing 21% more capital than previously which is expected of a company that's trying to break into profitability. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, both common traits of a multi-bagger.

On a side note, UPERGY Société Anonyme's current liabilities are still rather high at 42% of total assets. This can bring about some risks because the company is basically operating with a rather large reliance on its suppliers or other sorts of short-term creditors. While it's not necessarily a bad thing, it can be beneficial if this ratio is lower.

The Key Takeaway

In summary, it's great to see that UPERGY Société Anonyme has managed to break into profitability and is continuing to reinvest in its business. Given the stock has declined 66% in the last five years, this could be a good investment if the valuation and other metrics are also appealing. So researching this company further and determining whether or not these trends will continue seems justified.

Since virtually every company faces some risks, it's worth knowing what they are, and we've spotted 3 warning signs for UPERGY Société Anonyme (of which 1 is significant!) that you should know about.

While UPERGY Société Anonyme 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.