Tandem Group (LON:TND) Might Have The Makings Of A Multi-Bagger

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'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base 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. So on that note, Tandem Group (LON:TND) looks quite promising in regards to its trends of return on capital.

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. Analysts use this formula to calculate it for Tandem Group:

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

0.18 = UK£4.0m ÷ (UK£32m - UK£11m) (Based on the trailing twelve months to December 2020).

Therefore, Tandem Group has an ROCE of 18%. In absolute terms, that's a pretty normal return, and it's somewhat close to the Leisure industry average of 19%.

See our latest analysis for Tandem Group

Historical performance is a great place to start when researching a stock so above you can see the gauge for Tandem Group's ROCE against it's prior returns. If you'd like to look at how Tandem Group has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.

How Are Returns Trending?

Tandem Group is displaying some positive trends. The data shows that returns on capital have increased substantially over the last five years to 18%. The company is effectively making more money per dollar of capital used, and it's worth noting that the amount of capital has increased too, by 54%. So we're very much inspired by what we're seeing at Tandem Group thanks to its ability to profitably reinvest capital.

In Conclusion...

All in all, it's terrific to see that Tandem Group is reaping the rewards from prior investments and is growing its capital base. Since the stock has returned a staggering 459% to shareholders over the last five years, it looks like investors are recognizing these changes. Therefore, we think it would be worth your time to check if these trends are going to continue.

Tandem Group does have some risks though, and we've spotted 4 warning signs for Tandem Group 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.

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This article by Simply Wall St is general in nature. 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.
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