Will The ROCE Trend At Gr. Sarantis (ATH:SAR) Continue?

There are a few key trends to look for if we want to identify the next multi-bagger. Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount 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. So when we looked at Gr. Sarantis (ATH:SAR) and its trend of ROCE, we really liked what we saw.

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

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 Gr. Sarantis is:

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

0.15 = €50m ÷ (€428m - €100m) (Based on the trailing twelve months to June 2020).

Thus, Gr. Sarantis has an ROCE of 15%. On its own, that's a standard return, however it's much better than the 9.5% generated by the Personal Products industry.

See our latest analysis for Gr. Sarantis

In the above chart we have measured Gr. Sarantis' prior ROCE against its prior performance, but the future is arguably more important. If you'd like, you can check out the forecasts from the analysts covering Gr. Sarantis here for free.

What Can We Tell From Gr. Sarantis' ROCE Trend?

The trends we've noticed at Gr. Sarantis are quite reassuring. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 15%. Basically the business is earning more per dollar of capital invested and in addition to that, 72% more capital is being employed now too. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.

In Conclusion...

A company that is growing its returns on capital and can consistently reinvest in itself is a highly sought after trait, and that's what Gr. Sarantis has. And with the stock having performed exceptionally well over the last five years, these patterns are being accounted for by investors. 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.

While Gr. Sarantis looks impressive, no company is worth an infinite price. The intrinsic value infographic in our free research report helps visualize whether SAR is currently trading for a fair price.

While Gr. Sarantis 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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