Why We Like The Returns At Thermador Groupe (EPA:THEP)

There are a few key trends to look for if we want to identify the next multi-bagger. 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. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. And in light of that, the trends we're seeing at Thermador Groupe's (EPA:THEP) look very promising so lets take 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. To calculate this metric for Thermador Groupe, this is the formula:

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

0.24 = €75m ÷ (€469m - €155m) (Based on the trailing twelve months to June 2022).

Thus, Thermador Groupe has an ROCE of 24%. In absolute terms that's a great return and it's even better than the Trade Distributors industry average of 15%.

Our analysis indicates that THEP is potentially undervalued!

Above you can see how the current ROCE for Thermador Groupe 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 report on analyst forecasts for the company.

How Are Returns Trending?

Investors would be pleased with what's happening at Thermador Groupe. The data shows that returns on capital have increased substantially over the last five years to 24%. Basically the business is earning more per dollar of capital invested and in addition to that, 74% more capital is being employed now too. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, a combination that's common among multi-baggers.

What We Can Learn From Thermador Groupe's ROCE

A company that is growing its returns on capital and can consistently reinvest in itself is a highly sought after trait, and that's what Thermador Groupe has. Since the stock has returned a solid 75% to shareholders over the last five years, 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 more about Thermador Groupe, we've spotted 3 warning signs, and 2 of them can't be ignored.

Thermador Groupe is not the only stock earning high returns. If you'd like to see more, check out our free list of companies earning high returns on equity with solid fundamentals.

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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.