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? Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding 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. So, when we ran our eye over Interpump Group's (BIT:IP) trend of ROCE, we liked what we saw.

Understanding 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)

0.17 = €422m ÷ (€3.3b - €862m) (Based on the trailing twelve months to June 2023).

So, Interpump Group has an ROCE of 17%. On its own, that's a standard return, however it's much better than the 9.1% generated by the Machinery industry.

View 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'd like, you can check out the forecasts from the analysts covering Interpump Group here for free.

What The Trend Of ROCE Can Tell Us

While the returns on capital are good, they haven't moved much. The company has employed 112% more capital in the last five years, and the returns on that capital have remained stable at 17%. 17% is a pretty standard return, and it provides some comfort knowing that Interpump Group has consistently earned this amount. Stable returns in this ballpark can be unexciting, but if they can be maintained over the long run, they often provide nice rewards to shareholders.

Our Take On Interpump Group's ROCE

In the end, Interpump Group has proven its ability to adequately reinvest capital at good rates of return. And since the stock has risen strongly over the last five years, it appears the market might expect this trend to continue. So while investors seem to be recognizing these promising trends, we still believe the stock deserves further research.

Interpump Group could be trading at an attractive price in other respects, so you might find our free intrinsic value estimation on our platform quite valuable.

While Interpump Group 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.