Returns On Capital Are Showing Encouraging Signs 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? 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 Comptoir Group's (LON:COM) returns on capital, so let's have a look.

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 Comptoir Group:

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

0.068 = UK£1.7m ÷ (UK£35m - UK£10m) (Based on the trailing twelve months to July 2022).

Therefore, Comptoir Group has an ROCE of 6.8%. On its own, that's a low figure but it's around the 6.4% average generated by the Hospitality industry.

See 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 want to delve into the historical earnings, revenue and cash flow of Comptoir Group, check out these free graphs here.

What Can We Tell From Comptoir Group's ROCE Trend?

We're delighted to see that Comptoir Group is reaping rewards from its investments and is now generating some pre-tax profits. About five years ago the company was generating losses but things have turned around because it's now earning 6.8% on its capital. In addition to that, Comptoir Group is employing 124% 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.

The Key Takeaway

Long story short, we're delighted to see that Comptoir Group's reinvestment activities have paid off and the company is now profitable. Given the stock has declined 68% in the last five years, this could be a good investment if the valuation and other metrics are also appealing. So researching this company further and determining whether or not these trends will continue seems justified.

If you'd like to know more about Comptoir Group, we've spotted 2 warning signs, and 1 of them is concerning.

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. 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.