Stock Analysis

Has PageGroup (LON:PAGE) Got What It Takes To Become A Multi-Bagger?

  •  Updated
LSE:PAGE
Source: Shutterstock

If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out for. Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. However, after investigating PageGroup (LON:PAGE), we don't think it's current trends fit the mold of a multi-bagger.

What is 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 PageGroup is:

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

0.16 = UK£71m ÷ (UK£677m - UK£243m) (Based on the trailing twelve months to June 2020).

Thus, PageGroup has an ROCE of 16%. In absolute terms, that's a satisfactory return, but compared to the Professional Services industry average of 12% it's much better.

View our latest analysis for PageGroup

roce
LSE:PAGE Return on Capital Employed December 25th 2020

Above you can see how the current ROCE for PageGroup compares to its prior returns on capital, but there's only so much you can tell from the past. If you're interested, you can view the analysts predictions in our free report on analyst forecasts for the company.

What Does the ROCE Trend For PageGroup Tell Us?

On the surface, the trend of ROCE at PageGroup doesn't inspire confidence. Around five years ago the returns on capital were 34%, but since then they've fallen to 16%. On the other hand, the company has been employing more capital without a corresponding improvement in sales in the last year, which could suggest these investments are longer term plays. It may take some time before the company starts to see any change in earnings from these investments.

What We Can Learn From PageGroup's ROCE

Bringing it all together, while we're somewhat encouraged by PageGroup's reinvestment in its own business, we're aware that returns are shrinking. And with the stock having returned a mere 18% in the last five years to shareholders, you could argue that they're aware of these lackluster trends. Therefore, if you're looking for a multi-bagger, we'd propose looking at other options.

PageGroup does have some risks though, and we've spotted 1 warning sign for PageGroup that you might be interested in.

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive returns on equity.

When trading PageGroup or any other investment, use the platform considered by many to be the Professional's Gateway to the Worlds Market, Interactive Brokers. You get the lowest-cost* trading on stocks, options, futures, forex, bonds and funds worldwide from a single integrated account. Promoted


Valuation is complex, but we're helping make it simple.

Find out whether PageGroup is potentially over or undervalued by checking out our comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, insider transactions and financial health.

View the Free Analysis