Wynnstay Group (LON:WYN) Has Some Way To Go To Become A Multi-Bagger

What trends should we look for it we want to identify stocks that can multiply in value over the long term? Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. Although, when we looked at Wynnstay Group (LON:WYN), it didn't seem to tick all of these boxes.

What is Return On Capital Employed (ROCE)?

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. Analysts use this formula to calculate it for Wynnstay Group:

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

0.082 = UK£8.8m ÷ (UK£177m - UK£70m) (Based on the trailing twelve months to April 2021).

So, Wynnstay Group has an ROCE of 8.2%. On its own that's a low return on capital but it's in line with the industry's average returns of 8.3%.

View our latest analysis for Wynnstay Group

Above you can see how the current ROCE for Wynnstay Group compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like, you can check out the forecasts from the analysts covering Wynnstay Group here for free.

The Trend Of ROCE

The returns on capital haven't changed much for Wynnstay Group in recent years. Over the past five years, ROCE has remained relatively flat at around 8.2% and the business has deployed 21% more capital into its operations. This poor ROCE doesn't inspire confidence right now, and with the increase in capital employed, it's evident that the business isn't deploying the funds into high return investments.

The Bottom Line On Wynnstay Group's ROCE

Long story short, while Wynnstay Group has been reinvesting its capital, the returns that it's generating haven't increased. Since the stock has gained an impressive 60% over the last five years, investors must think there's better things to come. However, unless these underlying trends turn more positive, we wouldn't get our hopes up too high.

If you're still interested in Wynnstay Group it's worth checking out our FREE intrinsic value approximation to see if it's trading at an attractive price in other respects.

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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