There are a few key trends to look for if we want to identify the next multi-bagger. Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. With that in mind, we've noticed some promising trends at OPUS GLOBAL Nyrt (BUSE:OPUS) so let's look a bit deeper.
Understanding Return On Capital Employed (ROCE)
For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. The formula for this calculation on OPUS GLOBAL Nyrt is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.053 = Ft21b ÷ (Ft553b - Ft154b) (Based on the trailing twelve months to September 2020).
So, OPUS GLOBAL Nyrt has an ROCE of 5.3%. In absolute terms, that's a low return but it's around the Industrials industry average of 5.7%.
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 OPUS GLOBAL Nyrt has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.
What Can We Tell From OPUS GLOBAL Nyrt's ROCE Trend?
OPUS GLOBAL Nyrt has recently broken into profitability so their prior investments seem to be paying off. The company was generating losses five years ago, but now it's earning 5.3% which is a sight for sore eyes. In addition to that, OPUS GLOBAL Nyrt is employing 3,133% more capital than previously which is expected of a company that's trying to break into profitability. We like this trend, because it tells us the company has profitable reinvestment opportunities available to it, and if it continues going forward that can lead to a multi-bagger performance.
The Bottom Line
Overall, OPUS GLOBAL Nyrt gets a big tick from us thanks in most part to the fact that it is now profitable and is reinvesting in its business. And a remarkable 1,975% total return over the last five years tells us that investors are expecting more good things to come in the future. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.
Since virtually every company faces some risks, it's worth knowing what they are, and we've spotted 3 warning signs for OPUS GLOBAL Nyrt (of which 1 doesn't sit too well with us!) that you should know about.
While OPUS GLOBAL Nyrt 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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