Devernois (EPA:ALDEV) Might Have The Makings Of A Multi-Bagger

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? 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. Speaking of which, we noticed some great changes in Devernois' (EPA:ALDEV) returns on capital, so let's have a look.

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

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. Analysts use this formula to calculate it for Devernois:

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

0.023 = €442k ÷ (€27m - €8.1m) (Based on the trailing twelve months to December 2024).

So, Devernois has an ROCE of 2.3%. In absolute terms, that's a low return and it also under-performs the Luxury industry average of 7.9%.

Check out our latest analysis for Devernois

While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you'd like to look at how Devernois has performed in the past in other metrics, you can view this free graph of Devernois' past earnings, revenue and cash flow.

What Can We Tell From Devernois' ROCE Trend?

We're delighted to see that Devernois is reaping rewards from its investments and has now broken into profitability. While the business is profitable now, it used to be incurring losses on invested capital five years ago. At first glance, it seems the business is getting more proficient at generating returns, because over the same period, the amount of capital employed has reduced by 34%. Devernois could be selling under-performing assets since the ROCE is improving.

In Conclusion...

In the end, Devernois has proven it's capital allocation skills are good with those higher returns from less amount of capital. And given the stock has remained rather flat over the last three years, there might be an opportunity here if other metrics are strong. That being the case, research into the company's current valuation metrics and future prospects seems fitting.

Like most companies, Devernois does come with some risks, and we've found 1 warning sign that you should be aware of.

While Devernois 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.