Returns Are Gaining Momentum At OVH Groupe (EPA:OVH)

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. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. With that in mind, we've noticed some promising trends at OVH Groupe (EPA:OVH) so let's look a bit deeper.

What Is Return On Capital Employed (ROCE)?

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. Analysts use this formula to calculate it for OVH Groupe:

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

0.0076 = €8.4m ÷ (€1.4b - €339m) (Based on the trailing twelve months to August 2022).

So, OVH Groupe has an ROCE of 0.8%. Ultimately, that's a low return and it under-performs the IT industry average of 12%.

See our latest analysis for OVH Groupe

In the above chart we have measured OVH Groupe's prior ROCE against its prior performance, but the future is arguably more important. If you'd like to see what analysts are forecasting going forward, you should check out our free report for OVH Groupe.

What Does the ROCE Trend For OVH Groupe Tell Us?

OVH Groupe has recently broken into profitability so their prior investments seem to be paying off. The company was generating losses four years ago, but now it's earning 0.8% which is a sight for sore eyes. Not only that, but the company is utilizing 67% more capital than before, but that's to be expected from a company trying to break into profitability. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, both common traits of a multi-bagger.

The Bottom Line On OVH Groupe's ROCE

Long story short, we're delighted to see that OVH Groupe's reinvestment activities have paid off and the company is now profitable. Astute investors may have an opportunity here because the stock has declined 30% in the last year. With that in mind, we believe the promising trends warrant this stock for further investigation.

If you'd like to know more about OVH Groupe, we've spotted 2 warning signs, and 1 of them doesn't sit too well with us.

While OVH Groupe isn't earning the highest return, check out this free list of companies that are 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.