Smarttech247 Group (LON:S247) Has More To Do To Multiply In Value Going Forward

What trends should we look for it we want to identify stocks that can multiply in value over the long term? Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. That's why when we briefly looked at Smarttech247 Group's (LON:S247) ROCE trend, we were pretty happy with what we saw.

What Is Return On Capital Employed (ROCE)?

For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. To calculate this metric for Smarttech247 Group, this is the formula:

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

0.14 = €1.6m ÷ (€18m - €6.3m) (Based on the trailing twelve months to July 2023).

Therefore, Smarttech247 Group has an ROCE of 14%. In absolute terms, that's a satisfactory return, but compared to the Software industry average of 9.5% it's much better.

View our latest analysis for Smarttech247 Group

Historical performance is a great place to start when researching a stock so above you can see the gauge for Smarttech247 Group's ROCE against it's prior returns. If you want to delve into the historical earnings, revenue and cash flow of Smarttech247 Group, check out these free graphs here.

What The Trend Of ROCE Can Tell Us

The trend of ROCE doesn't stand out much, but returns on a whole are decent. The company has employed 598% more capital in the last four years, and the returns on that capital have remained stable at 14%. Since 14% is a moderate ROCE though, it's good to see a business can continue to reinvest at these decent rates of return. Stable returns in this ballpark can be unexciting, but if they can be maintained over the long run, they often provide nice rewards to shareholders.

Our Take On Smarttech247 Group's ROCE

The main thing to remember is that Smarttech247 Group has proven its ability to continually reinvest at respectable rates of return. However, despite the favorable fundamentals, the stock has fallen 23% over the last year, so there might be an opportunity here for astute investors. That's why we think it'd be worthwhile to look further into this stock given the fundamentals are appealing.

Smarttech247 Group does come with some risks though, we found 2 warning signs in our investment analysis, and 1 of those doesn't sit too well with us...

While Smarttech247 Group may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.

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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.