We Like These Underlying Return On Capital Trends At Watches of Switzerland Group (LON:WOSG)

To find a multi-bagger stock, what are the underlying trends we should look for in a business? Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. With that in mind, we've noticed some promising trends at Watches of Switzerland Group (LON:WOSG) so let's look a bit deeper.

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 Watches of Switzerland Group:

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

0.17 = UK£167m ÷ (UK£1.3b - UK£302m) (Based on the trailing twelve months to October 2023).

So, Watches of Switzerland Group has an ROCE of 17%. That's a relatively normal return on capital, and it's around the 14% generated by the Specialty Retail industry.

Check out our latest analysis for Watches of Switzerland Group

Above you can see how the current ROCE for Watches of Switzerland 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 Watches of Switzerland Group for free.

The Trend Of ROCE

Investors would be pleased with what's happening at Watches of Switzerland Group. Over the last five years, returns on capital employed have risen substantially to 17%. The amount of capital employed has increased too, by 180%. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, a combination that's common among multi-baggers.

Our Take On Watches of Switzerland Group's ROCE

All in all, it's terrific to see that Watches of Switzerland Group is reaping the rewards from prior investments and is growing its capital base. Astute investors may have an opportunity here because the stock has declined 48% in the last three years. With that in mind, we believe the promising trends warrant this stock for further investigation.

One more thing, we've spotted 1 warning sign facing Watches of Switzerland Group that you might find interesting.

While Watches of Switzerland Group isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

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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.