Spartoo SAS (EPA:ALSPT) Is Doing The Right Things To Multiply Its Share Price

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. So when we looked at Spartoo SAS (EPA:ALSPT) and its trend of ROCE, we really liked what we saw.

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. The formula for this calculation on Spartoo SAS is:

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

0.043 = €2.8m ÷ (€106m - €39m) (Based on the trailing twelve months to December 2021).

Thus, Spartoo SAS has an ROCE of 4.3%. In absolute terms, that's a low return and it also under-performs the Online Retail industry average of 12%.

View our latest analysis for Spartoo SAS

In the above chart we have measured Spartoo SAS' 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 Spartoo SAS here for free.

How Are Returns Trending?

Spartoo SAS has broken into the black (profitability) and we're sure it's a sight for sore eyes. The company was generating losses two years ago, but has managed to turn it around and as we saw earlier is now earning 4.3%, which is always encouraging. While returns have increased, the amount of capital employed by Spartoo SAS has remained flat over the period. With no noticeable increase in capital employed, it's worth knowing what the company plans on doing going forward in regards to reinvesting and growing the business. After all, a company can only become a long term multi-bagger if it continually reinvests in itself at high rates of return.

Our Take On Spartoo SAS' ROCE

In summary, we're delighted to see that Spartoo SAS has been able to increase efficiencies and earn higher rates of return on the same amount of capital. And since the stock has dived 80% over the last year, there may be other factors affecting the company's prospects. Still, it's worth doing some further research to see if the trends will continue into the future.

On a final note, we found 4 warning signs for Spartoo SAS (1 shouldn't be ignored) you should be aware of.

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.