Is Nafpaktos Textile Industry (ATH:NAYP) A Future Multi-bagger?

Finding a business that has the potential to grow substantially is not easy, but it is possible if we look at a few key financial metrics. Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. With that in mind, we've noticed some promising trends at Nafpaktos Textile Industry (ATH:NAYP) so let's look a bit deeper.

Return On Capital Employed (ROCE): What is it?

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 Nafpaktos Textile Industry:

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

0.032 = €358k ÷ (€13m - €1.5m) (Based on the trailing twelve months to June 2020).

Thus, Nafpaktos Textile Industry has an ROCE of 3.2%. In absolute terms, that's a low return and it also under-performs the Luxury industry average of 7.9%.

Check out our latest analysis for Nafpaktos Textile Industry

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're interested in investigating Nafpaktos Textile Industry's past further, check out this free graph of past earnings, revenue and cash flow.

What Can We Tell From Nafpaktos Textile Industry's ROCE Trend?

Nafpaktos Textile Industry has broken into the black (profitability) and we're sure it's a sight for sore eyes. While the business was unprofitable in the past, it's now turned things around and is earning 3.2% on its capital. On top of that, what's interesting is that the amount of capital being employed has remained steady, so the business hasn't needed to put any additional money to work to generate these higher returns. With no noticeable increase in capital employed, it's worth knowing what the company plans on doing going forward in regards to reinvesting and growing the business. Because in the end, a business can only get so efficient.

Our Take On Nafpaktos Textile Industry's ROCE

To sum it up, Nafpaktos Textile Industry is collecting higher returns from the same amount of capital, and that's impressive. Since the stock has returned a staggering 181% to shareholders over the last five years, it looks like investors are recognizing these changes. Therefore, we think it would be worth your time to check if these trends are going to continue.

One more thing: We've identified 3 warning signs with Nafpaktos Textile Industry (at least 1 which is a bit concerning) , and understanding them would certainly be useful.

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high returns on equity.

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