If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out for. Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's amount of capital employed. 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 looked at the ROCE trend of Piscines Desjoyaux (EPA:ALPDX) we really liked what we saw.
What is Return On Capital Employed (ROCE)?
Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. Analysts use this formula to calculate it for Piscines Desjoyaux:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.23 = €21m ÷ (€121m - €32m) (Based on the trailing twelve months to August 2020).
Thus, Piscines Desjoyaux has an ROCE of 23%. In absolute terms that's a great return and it's even better than the Leisure industry average of 15%.
Historical performance is a great place to start when researching a stock so above you can see the gauge for Piscines Desjoyaux's ROCE against it's prior returns. If you want to delve into the historical earnings, revenue and cash flow of Piscines Desjoyaux, check out these free graphs here.
What Can We Tell From Piscines Desjoyaux's ROCE Trend?
Piscines Desjoyaux's ROCE growth is quite impressive. More specifically, while the company has kept capital employed relatively flat over the last five years, the ROCE has climbed 341% in that same time. So it's likely that the business is now reaping the full benefits of its past investments, since the capital employed hasn't changed considerably. It's worth looking deeper into this though because while it's great that the business is more efficient, it might also mean that going forward the areas to invest internally for the organic growth are lacking.
Our Take On Piscines Desjoyaux's ROCE
To sum it up, Piscines Desjoyaux is collecting higher returns from the same amount of capital, and that's impressive. Since the stock has returned a staggering 262% to shareholders over the last five years, it looks like investors are recognizing these changes. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.
On the other side of ROCE, we have to consider valuation. That's why we have a FREE intrinsic value estimation on our platform that is definitely worth checking out.
Piscines Desjoyaux 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. 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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