TPXimpact Holdings (LON:TPX) Might Have The Makings Of A Multi-Bagger

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. Speaking of which, we noticed some great changes in TPXimpact Holdings' (LON:TPX) returns on capital, so let's have a look.

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. Analysts use this formula to calculate it for TPXimpact Holdings:

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

0.015 = UK£1.3m ÷ (UK£110m - UK£21m) (Based on the trailing twelve months to September 2021).

Thus, TPXimpact Holdings has an ROCE of 1.5%. In absolute terms, that's a low return and it also under-performs the IT industry average of 12%.

View our latest analysis for TPXimpact Holdings

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

The Trend Of ROCE

We're delighted to see that TPXimpact Holdings is reaping rewards from its investments and is now generating some pre-tax profits. The company was generating losses three years ago, but now it's earning 1.5% which is a sight for sore eyes. In addition to that, TPXimpact Holdings is employing 1,485% more capital than previously which is expected of a company that's trying to break into profitability. This can tell us that the company has plenty of reinvestment opportunities that are able to generate higher returns.

On a related note, the company's ratio of current liabilities to total assets has decreased to 19%, which basically reduces it's funding from the likes of short-term creditors or suppliers. So this improvement in ROCE has come from the business' underlying economics, which is great to see.

In Conclusion...

To the delight of most shareholders, TPXimpact Holdings has now broken into profitability. And with the stock having performed exceptionally well over the last three years, these patterns are being accounted for by investors. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.

Since virtually every company faces some risks, it's worth knowing what they are, and we've spotted 3 warning signs for TPXimpact Holdings (of which 1 can't be ignored!) that you should know about.

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.