Investors Met With Slowing Returns on Capital At Interpump Group (BIT:IP)

To find a multi-bagger stock, what are the underlying trends we should look for in a business? Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base 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. That's why when we briefly looked at Interpump Group's (BIT:IP) ROCE trend, we were pretty happy with what we saw.

What is Return On Capital Employed (ROCE)?

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. Analysts use this formula to calculate it for Interpump Group:

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

0.14 = €281m ÷ (€2.6b - €565m) (Based on the trailing twelve months to September 2021).

So, Interpump Group has an ROCE of 14%. On its own, that's a standard return, however it's much better than the 6.1% generated by the Machinery industry.

Check out our latest analysis for Interpump Group

Above you can see how the current ROCE for Interpump Group compares to its prior returns on capital, but there's only so much you can tell from the past. If you're interested, you can view the analysts predictions in our free report on analyst forecasts for the company.

What The Trend Of ROCE Can Tell Us

The trend of ROCE doesn't stand out much, but returns on a whole are decent. The company has consistently earned 14% for the last five years, and the capital employed within the business has risen 80% in that time. 14% is a pretty standard return, and it provides some comfort knowing that Interpump Group has consistently earned this amount. Over long periods of time, returns like these might not be too exciting, but with consistency they can pay off in terms of share price returns.

In Conclusion...

To sum it up, Interpump Group has simply been reinvesting capital steadily, at those decent rates of return. On top of that, the stock has rewarded shareholders with a remarkable 317% return to those who've held over the last five years. So while investors seem to be recognizing these promising trends, we still believe the stock deserves further research.

If you're still interested in Interpump Group it's worth checking out our FREE intrinsic value approximation to see if it's trading at an attractive price in other respects.

While Interpump Group 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. 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.