Stock Analysis

Séché Environnement's (EPA:SCHP) Returns On Capital Are Heading Higher

ENXTPA:SCHP
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To find a multi-bagger stock, what are the underlying trends we should look for in a business? One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing amount of capital employed. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. With that in mind, we've noticed some promising trends at Séché Environnement (EPA:SCHP) so let's look a bit deeper.

What Is 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 Séché Environnement:

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

0.093 = €91m ÷ (€1.4b - €426m) (Based on the trailing twelve months to December 2022).

So, Séché Environnement has an ROCE of 9.3%. On its own, that's a low figure but it's around the 10.0% average generated by the Commercial Services industry.

Check out our latest analysis for Séché Environnement

roce
ENXTPA:SCHP Return on Capital Employed August 15th 2023

In the above chart we have measured Séché Environnement's prior ROCE against its prior performance, but the future is arguably more important. If you'd like, you can check out the forecasts from the analysts covering Séché Environnement here for free.

How Are Returns Trending?

While in absolute terms it isn't a high ROCE, it's promising to see that it has been moving in the right direction. Over the last five years, returns on capital employed have risen substantially to 9.3%. Basically the business is earning more per dollar of capital invested and in addition to that, 55% 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.

Our Take On Séché Environnement's ROCE

All in all, it's terrific to see that Séché Environnement is reaping the rewards from prior investments and is growing its capital base. Since the stock has returned a staggering 366% to shareholders over the last five years, it looks like investors are recognizing these changes. Therefore, we think it would be worth your time to check if these trends are going to continue.

On a final note, we've found 1 warning sign for Séché Environnement that we think you should be aware of.

While Séché Environnement 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. 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.