The Trend Of High Returns At Creightons (LON:CRL) Has Us Very Interested

By
Simply Wall St
Published
July 24, 2021
LSE:CRL
Source: Shutterstock

What trends should we look for it we want to identify stocks that can multiply in value over the long term? One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing amount 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. And in light of that, the trends we're seeing at Creightons' (LON:CRL) look very promising so lets take a look.

Understanding Return On Capital Employed (ROCE)

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. To calculate this metric for Creightons, this is the formula:

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

0.26 = UK£6.1m ÷ (UK£34m - UK£9.9m) (Based on the trailing twelve months to March 2021).

Therefore, Creightons has an ROCE of 26%. That's a fantastic return and not only that, it outpaces the average of 9.4% earned by companies in a similar industry.

View our latest analysis for Creightons

roce
LSE:CRL Return on Capital Employed July 24th 2021

Historical performance is a great place to start when researching a stock so above you can see the gauge for Creightons' ROCE against it's prior returns. If you want to delve into the historical earnings, revenue and cash flow of Creightons, check out these free graphs here.

What Does the ROCE Trend For Creightons Tell Us?

Investors would be pleased with what's happening at Creightons. The data shows that returns on capital have increased substantially over the last five years to 26%. The amount of capital employed has increased too, by 230%. So we're very much inspired by what we're seeing at Creightons thanks to its ability to profitably reinvest capital.

The Bottom Line

In summary, it's great to see that Creightons can compound returns by consistently reinvesting capital at increasing rates of return, because these are some of the key ingredients of those highly sought after multi-baggers. And a remarkable 796% total return over the last five years tells us that investors are expecting more good things to come in the future. So given the stock has proven it has promising trends, it's worth researching the company further to see if these trends are likely to persist.

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

If you'd like to see other companies earning high returns, check out our free list of companies earning high returns with solid balance sheets here.

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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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Simply Wall St

Simply Wall St is focused on providing unbiased, high-quality research coverage on every listed company in the world. Our research team consists of data scientists and multiple equity analysts with over two decades worth of financial markets experience between them.