Novatech Industries (EPA:MLNOV) Might Have The Makings Of A Multi-Bagger

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. Speaking of which, we noticed some great changes in Novatech Industries' (EPA:MLNOV) returns on capital, so let's have a look.

Our free stock report includes 3 warning signs investors should be aware of before investing in Novatech Industries. Read for free now.

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 Novatech Industries is:

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

0.083 = €3.3m ÷ (€56m - €17m) (Based on the trailing twelve months to December 2023).

So, Novatech Industries has an ROCE of 8.3%. In absolute terms, that's a low return but it's around the Electronic industry average of 7.1%.

View our latest analysis for Novatech Industries

Historical performance is a great place to start when researching a stock so above you can see the gauge for Novatech Industries' ROCE against it's prior returns. If you're interested in investigating Novatech Industries' past further, check out this free graph covering Novatech Industries' 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 three years to 8.3%. The amount of capital employed has increased too, by 83%. So we're very much inspired by what we're seeing at Novatech Industries thanks to its ability to profitably reinvest capital.

The Bottom Line

In summary, it's great to see that Novatech Industries can compound returns by consistently reinvesting capital at increasing rates of return, because these are some of the key ingredients of those highly sought after multi-baggers. And investors seem to expect more of this going forward, since the stock has rewarded shareholders with a 63% return over the last five years. So given the stock has proven it has promising trends, it's worth researching the company further to see if these trends are likely to persist.

If you'd like to know about the risks facing Novatech Industries, we've discovered 3 warning signs that you should be aware of.

While Novatech Industries 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.

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.