Will Interpump Group (BIT:IP) Multiply In Value Going Forward?

If you're looking for a multi-bagger, there's a few things to keep an eye out for. One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing amount of capital employed. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. So, when we ran our eye over Interpump Group's (BIT:IP) trend of ROCE, we liked what we saw.

What is 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. To calculate this metric for Interpump Group, this is the formula:

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

0.12 = €208m ÷ (€2.1b - €440m) (Based on the trailing twelve months to December 2020).

Therefore, Interpump Group has an ROCE of 12%. On its own, that's a standard return, however it's much better than the 5.5% generated by the Machinery industry.

See our latest analysis for Interpump Group

In the above chart we have measured Interpump Group's prior ROCE against its prior performance, but the future is arguably more important. If you'd like to see what analysts are forecasting going forward, you should check out our free report for Interpump Group.

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 12% for the last five years, and the capital employed within the business has risen 66% in that time. 12% 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.

What We Can Learn From Interpump Group's ROCE

To sum it up, Interpump Group has simply been reinvesting capital steadily, at those decent rates of return. And long term investors would be thrilled with the 249% return they've received over the last five years. So while investors seem to be recognizing these promising trends, we still believe the stock deserves further research.

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

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. 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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