Investors Will Want i2S' (EPA:ALI2S) Growth In ROCE To Persist

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. 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. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. With that in mind, we've noticed some promising trends at i2S (EPA:ALI2S) so let's look a bit deeper.

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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 i2S:

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

0.056 = €775k ÷ (€20m - €6.3m) (Based on the trailing twelve months to December 2024).

So, i2S has an ROCE of 5.6%. In absolute terms, that's a low return but it's around the Electronic industry average of 5.2%.

View our latest analysis for i2S

Historical performance is a great place to start when researching a stock so above you can see the gauge for i2S' ROCE against it's prior returns. If you're interested in investigating i2S' past further, check out this free graph covering i2S' past earnings, revenue and cash flow.

How Are Returns Trending?

While in absolute terms it isn't a high ROCE, it's promising to see that it has been moving in the right direction. The data shows that returns on capital have increased substantially over the last five years to 5.6%. Basically the business is earning more per dollar of capital invested and in addition to that, 86% more capital is being employed now too. So we're very much inspired by what we're seeing at i2S thanks to its ability to profitably reinvest capital.

The Bottom Line

A company that is growing its returns on capital and can consistently reinvest in itself is a highly sought after trait, and that's what i2S has. And with the stock having performed exceptionally well over the last five years, these patterns are being accounted for by investors. In light of that, we think it's worth looking further into this stock because if i2S can keep these trends up, it could have a bright future ahead.

If you'd like to know about the risks facing i2S, we've discovered 4 warning signs that you should be aware of.

While i2S may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list 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.