Vogiatzoglou Systems (ATH:VOSYS) Is Doing The Right Things To Multiply Its Share Price

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. With that in mind, we've noticed some promising trends at Vogiatzoglou Systems (ATH:VOSYS) so let's look a bit deeper.

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. Analysts use this formula to calculate it for Vogiatzoglou Systems:

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

0.042 = €832k ÷ (€26m - €5.5m) (Based on the trailing twelve months to December 2020).

Thus, Vogiatzoglou Systems has an ROCE of 4.2%. In absolute terms, that's a low return and it also under-performs the Trade Distributors industry average of 11%.

View our latest analysis for Vogiatzoglou Systems

While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you'd like to look at how Vogiatzoglou Systems has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.

So How Is Vogiatzoglou Systems' ROCE Trending?

While in absolute terms it isn't a high ROCE, it's promising to see that it has been moving in the right direction. Over the last five years, returns on capital employed have risen substantially to 4.2%. The amount of capital employed has increased too, by 32%. 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.

The Bottom Line

To sum it up, Vogiatzoglou Systems has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. Since the stock has returned a staggering 208% to shareholders over the last five years, it looks like investors are recognizing these changes. 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.

If you'd like to know about the risks facing Vogiatzoglou Systems, we've discovered 3 warning signs that you should be aware of.

While Vogiatzoglou Systems 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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