Kumulus Vape (EPA:ALVAP) Looks To Prolong Its Impressive Returns

If you're looking for a multi-bagger, there's a few things to keep an eye out 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. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. So, when we ran our eye over Kumulus Vape's (EPA:ALVAP) trend of ROCE, 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. The formula for this calculation on Kumulus Vape is:

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

0.26 = €3.7m ÷ (€18m - €3.5m) (Based on the trailing twelve months to June 2023).

Therefore, Kumulus Vape has an ROCE of 26%. In absolute terms that's a great return and it's even better than the Specialty Retail industry average of 7.7%.

See our latest analysis for Kumulus Vape

Historical performance is a great place to start when researching a stock so above you can see the gauge for Kumulus Vape's ROCE against it's prior returns. If you want to delve into the historical earnings, revenue and cash flow of Kumulus Vape, check out these free graphs here.

What Does the ROCE Trend For Kumulus Vape Tell Us?

Kumulus Vape deserves to be commended in regards to it's returns. Over the past five years, ROCE has remained relatively flat at around 26% and the business has deployed 1,485% more capital into its operations. Now considering ROCE is an attractive 26%, this combination is actually pretty appealing because it means the business can consistently put money to work and generate these high returns. If these trends can continue, it wouldn't surprise us if the company became a multi-bagger.

On a side note, Kumulus Vape has done well to reduce current liabilities to 20% of total assets over the last five years. This can eliminate some of the risks inherent in the operations because the business has less outstanding obligations to their suppliers and or short-term creditors than they did previously.

The Key Takeaway

In summary, we're delighted to see that Kumulus Vape has been compounding returns by reinvesting at consistently high rates of return, as these are common traits of a multi-bagger. And since the stock has risen strongly over the last three years, it appears the market might expect this trend to continue. So even though the stock might be more "expensive" than it was before, we think the strong fundamentals warrant this stock for further research.

On a final note, we've found 2 warning signs for Kumulus Vape that we think you should be aware of.

If you'd like to see other companies earning high returns, check out our free list of companies earning high returns with solid balance sheets 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.