Will The ROCE Trend At Comer Industries (BIT:COM) Continue?

By
Simply Wall St
Published
November 10, 2020

If you're looking for a multi-bagger, there's a few things to keep an eye out for. Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount 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. So when we looked at Comer Industries (BIT:COM) and its trend of ROCE, we really liked what we saw.

Understanding 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. The formula for this calculation on Comer Industries is:

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

0.13 = €23m ÷ (€288m - €113m) (Based on the trailing twelve months to June 2020).

So, Comer Industries has an ROCE of 13%. On its own, that's a standard return, however it's much better than the 5.3% generated by the Machinery industry.

Check out our latest analysis for Comer Industries

BIT:COM Return on Capital Employed November 11th 2020

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 Comer Industries' past further, check out this free graph of past earnings, revenue and cash flow.

What Does the ROCE Trend For Comer Industries Tell Us?

Investors would be pleased with what's happening at Comer Industries. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 13%. The amount of capital employed has increased too, by 25%. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.

What We Can Learn From Comer Industries' ROCE

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 Comer Industries has. And since the stock has fallen 14% over the last year, there might be an opportunity here. With that in mind, we believe the promising trends warrant this stock for further investigation.

Comer Industries does have some risks though, and we've spotted 1 warning sign for Comer Industries that you might be interested in.

While Comer Industries 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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This article by Simply Wall St is general in nature. 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.
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