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. Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base 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. And in light of that, the trends we're seeing at Speed Rabbit Pizza's (EPA:MLSRP) look very promising so lets take a look.
Understanding 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 Speed Rabbit Pizza, this is the formula:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.23 = €3.6m ÷ (€18m - €2.3m) (Based on the trailing twelve months to December 2020).
Thus, Speed Rabbit Pizza has an ROCE of 23%. That's a fantastic return and not only that, it outpaces the average of 2.5% earned by companies in a similar industry.
View our latest analysis for Speed Rabbit Pizza
Historical performance is a great place to start when researching a stock so above you can see the gauge for Speed Rabbit Pizza's ROCE against it's prior returns. If you'd like to look at how Speed Rabbit Pizza has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.
What Does the ROCE Trend For Speed Rabbit Pizza Tell Us?
The trends we've noticed at Speed Rabbit Pizza are quite reassuring. Over the last five years, returns on capital employed have risen substantially to 23%. The amount of capital employed has increased too, by 81%. 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.
In Conclusion...
To sum it up, Speed Rabbit Pizza has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. And a remarkable 348% total return over the last five years tells us that investors are expecting more good things to come in the future. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.
Speed Rabbit Pizza does have some risks, we noticed 5 warning signs (and 1 which makes us a bit uncomfortable) we think you should know about.
High returns are a key ingredient to strong performance, so check out our free list ofstocks 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.
About ENXTPA:MLSRP
Moderate with adequate balance sheet.
