Nacon (EPA:NACON) Has Some Way To Go To Become A Multi-Bagger

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. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. So, when we ran our eye over Nacon's (EPA:NACON) trend of ROCE, we liked what we saw.

Return On Capital Employed (ROCE): What is it?

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. The formula for this calculation on Nacon is:

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

0.11 = €27m ÷ (€323m - €76m) (Based on the trailing twelve months to September 2020).

Therefore, Nacon has an ROCE of 11%. In absolute terms, that's a pretty normal return, and it's somewhat close to the Consumer Durables industry average of 10%.

See our latest analysis for Nacon

Above you can see how the current ROCE for Nacon compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like to see what analysts are forecasting going forward, you should check out our free report for Nacon.

So How Is Nacon's ROCE Trending?

While the current returns on capital are decent, they haven't changed much. The company has employed 44% more capital in the last one year, and the returns on that capital have remained stable at 11%. 11% is a pretty standard return, and it provides some comfort knowing that Nacon has consistently earned this amount. Stable returns in this ballpark can be unexciting, but if they can be maintained over the long run, they often provide nice rewards to shareholders.

In Conclusion...

In the end, Nacon has proven its ability to adequately reinvest capital at good rates of return. And the stock has followed suit returning a meaningful 34% to shareholders over the last year. So while the positive underlying trends may be accounted for by investors, we still think this stock is worth looking into further.

Nacon could be trading at an attractive price in other respects, so you might find our free intrinsic value estimation on our platform quite valuable.

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high returns on equity.

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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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