Returns Are Gaining Momentum At Comptoir Group (LON:COM)

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, 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. With that in mind, we've noticed some promising trends at Comptoir Group (LON:COM) so let's look a bit deeper.

Understanding 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. To calculate this metric for Comptoir Group, this is the formula:

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

0.078 = UK£1.8m ÷ (UK£32m - UK£9.4m) (Based on the trailing twelve months to January 2023).

So, Comptoir Group has an ROCE of 7.8%. On its own that's a low return, but compared to the average of 5.9% generated by the Hospitality industry, it's much better.

View our latest analysis for Comptoir Group

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

The Trend Of ROCE

We're delighted to see that Comptoir Group is reaping rewards from its investments and is now generating some pre-tax profits. Shareholders would no doubt be pleased with this because the business was loss-making five years ago but is is now generating 7.8% on its capital. In addition to that, Comptoir Group is employing 51% more capital than previously which is expected of a company that's trying to break into profitability. We like this trend, because it tells us the company has profitable reinvestment opportunities available to it, and if it continues going forward that can lead to a multi-bagger performance.

Our Take On Comptoir Group's ROCE

Long story short, we're delighted to see that Comptoir Group's reinvestment activities have paid off and the company is now profitable. And since the stock has fallen 34% over the last five years, there might be an opportunity here. With that in mind, we believe the promising trends warrant this stock for further investigation.

On a separate note, we've found 3 warning signs for Comptoir Group you'll probably want to know about.

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high returns on equity.

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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.