If you're looking for a multi-bagger, there's a few things to 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. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. So, when we ran our eye over Precia's (EPA:PREC) trend of ROCE, we liked what we saw.
Understanding Return On Capital Employed (ROCE)
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. Analysts use this formula to calculate it for Precia:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.11 = €11m ÷ (€141m - €46m) (Based on the trailing twelve months to June 2020).
Thus, Precia has an ROCE of 11%. In absolute terms, that's a satisfactory return, but compared to the Machinery industry average of 7.9% it's much better.
Check out our latest analysis for Precia
Historical performance is a great place to start when researching a stock so above you can see the gauge for Precia's ROCE against it's prior returns. If you're interested in investigating Precia's past further, check out this free graph of past earnings, revenue and cash flow.
What Does the ROCE Trend For Precia Tell Us?
The trend of ROCE doesn't stand out much, but returns on a whole are decent. Over the past five years, ROCE has remained relatively flat at around 11% and the business has deployed 55% more capital into its operations. Since 11% is a moderate ROCE though, it's good to see a business can continue to reinvest at these decent rates of return. Over long periods of time, returns like these might not be too exciting, but with consistency they can pay off in terms of share price returns.
In Conclusion...
To sum it up, Precia has simply been reinvesting capital steadily, at those decent rates of return. And the stock has followed suit returning a meaningful 92% to shareholders over the last five years. So while investors seem to be recognizing these promising trends, we still believe the stock deserves further research.
Precia could be trading at an attractive price in other respects, so you might find our free intrinsic value estimation on our platform quite valuable.
While Precia isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.
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This article by Simply Wall St is general in nature. 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.
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About ENXTPA:ALPM
Flawless balance sheet and slightly overvalued.
