Has Amino Technologies (LON:AMO) Got What It Takes To Become A Multi-Bagger?

To find a multi-bagger stock, what are the underlying trends we should look for in a business? 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. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. In light of that, when we looked at Amino Technologies (LON:AMO) and its ROCE trend, we weren't exactly thrilled.

Understanding 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. The formula for this calculation on Amino Technologies is:

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

0.059 = US$5.6m ÷ (US$123m - US$27m) (Based on the trailing twelve months to November 2020).

Therefore, Amino Technologies has an ROCE of 5.9%. In absolute terms, that's a low return and it also under-performs the Communications industry average of 10%.

View our latest analysis for Amino Technologies

Above you can see how the current ROCE for Amino Technologies compares to its prior returns on capital, but there's only so much you can tell from the past. If you're interested, you can view the analysts predictions in our free report on analyst forecasts for the company.

What The Trend Of ROCE Can Tell Us

On the surface, the trend of ROCE at Amino Technologies doesn't inspire confidence. To be more specific, ROCE has fallen from 8.2% over the last five years. On the other hand, the company has been employing more capital without a corresponding improvement in sales in the last year, which could suggest these investments are longer term plays. It's worth keeping an eye on the company's earnings from here on to see if these investments do end up contributing to the bottom line.

The Key Takeaway

Bringing it all together, while we're somewhat encouraged by Amino Technologies' reinvestment in its own business, we're aware that returns are shrinking. Since the stock has gained an impressive 81% over the last five years, investors must think there's better things to come. Ultimately, if the underlying trends persist, we wouldn't hold our breath on it being a multi-bagger going forward.

If you'd like to know about the risks facing Amino Technologies, we've discovered 1 warning sign that you should be aware of.

While Amino Technologies 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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