Alkemy (BIT:ALK) Has More To Do To Multiply In Value Going Forward

There are a few key trends to look for if we want to identify the next multi-bagger. Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. However, after briefly looking over the numbers, we don't think Alkemy (BIT:ALK) has the makings of a multi-bagger going forward, but let's have a look at why that may be.

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. To calculate this metric for Alkemy, this is the formula:

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

0.098 = €7.8m ÷ (€130m - €50m) (Based on the trailing twelve months to December 2023).

So, Alkemy has an ROCE of 9.8%. On its own that's a low return on capital but it's in line with the industry's average returns of 9.8%.

See our latest analysis for Alkemy

In the above chart we have measured Alkemy'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 analyst report for Alkemy .

So How Is Alkemy's ROCE Trending?

There are better returns on capital out there than what we're seeing at Alkemy. The company has employed 60% more capital in the last five years, and the returns on that capital have remained stable at 9.8%. Given the company has increased the amount of capital employed, it appears the investments that have been made simply don't provide a high return on capital.

The Bottom Line

In conclusion, Alkemy has been investing more capital into the business, but returns on that capital haven't increased. And in the last five years, the stock has given away 12% so the market doesn't look too hopeful on these trends strengthening any time soon. Therefore based on the analysis done in this article, we don't think Alkemy has the makings of a multi-bagger.

On a final note, we've found 2 warning signs for Alkemy that we think you should be aware of.

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high returns on equity.

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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.