Cateks d.d (ZGSE:CTKS) Has Some Way To Go To Become A 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. Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing 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 Cateks d.d (ZGSE:CTKS) and its ROCE trend, we weren't exactly thrilled.

What is 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. To calculate this metric for Cateks d.d, this is the formula:

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

0.057 = Kn4.9m ÷ (Kn121m - Kn35m) (Based on the trailing twelve months to March 2022).

Thus, Cateks d.d has an ROCE of 5.7%. Ultimately, that's a low return and it under-performs the Luxury industry average of 11%.

See our latest analysis for Cateks d.d

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

What Does the ROCE Trend For Cateks d.d Tell Us?

There are better returns on capital out there than what we're seeing at Cateks d.d. The company has consistently earned 5.7% for the last five years, and the capital employed within the business has risen 39% in that time. Given the company has increased the amount of capital employed, it appears the investments that have been made simply don't provide a high return on capital.

In Conclusion...

As we've seen above, Cateks d.d's returns on capital haven't increased but it is reinvesting in the business. Yet to long term shareholders the stock has gifted them an incredible 351% return in the last three years, so the market appears to be rosy about its future. Ultimately, if the underlying trends persist, we wouldn't hold our breath on it being a multi-bagger going forward.

If you want to know some of the risks facing Cateks d.d we've found 2 warning signs (1 is potentially serious!) that you should be aware of before investing here.

While Cateks d.d may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.

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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.