Glenveagh Properties (ISE:GVR) Is Experiencing Growth In Returns On Capital

Simply Wall St
May 08, 2022
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If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out for. In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. Speaking of which, we noticed some great changes in Glenveagh Properties' (ISE:GVR) returns on capital, so let's have a look.

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 Glenveagh Properties is:

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

0.058 = €51m ÷ (€970m - €105m) (Based on the trailing twelve months to December 2021).

Thus, Glenveagh Properties has an ROCE of 5.8%. Ultimately, that's a low return and it under-performs the Consumer Durables industry average of 12%.

Check out our latest analysis for Glenveagh Properties

ISE:GVR Return on Capital Employed May 8th 2022

Above you can see how the current ROCE for Glenveagh Properties compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like, you can check out the forecasts from the analysts covering Glenveagh Properties here for free.

So How Is Glenveagh Properties' ROCE Trending?

The fact that Glenveagh Properties is now generating some pre-tax profits from its prior investments is very encouraging. Shareholders would no doubt be pleased with this because the business was loss-making four years ago but is is now generating 5.8% on its capital. In addition to that, Glenveagh Properties is employing 34% 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 On Glenveagh Properties' ROCE

To the delight of most shareholders, Glenveagh Properties has now broken into profitability. Since the stock has returned a solid 29% to shareholders over the last three years, it's fair to say investors are beginning to recognize 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.

Before jumping to any conclusions though, we need to know what value we're getting for the current share price. That's where you can check out our FREE intrinsic value estimation that compares the share price and estimated value.

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive returns on equity.

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