Greenthesis (BIT:GTH) Is Doing The Right Things To Multiply Its Share Price

To find a multi-bagger stock, what are the underlying trends we should look for in a business? Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing 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. With that in mind, we've noticed some promising trends at Greenthesis (BIT:GTH) so let's look a bit deeper.

What Is 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. Analysts use this formula to calculate it for Greenthesis:

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

0.11 = €27m ÷ (€347m - €102m) (Based on the trailing twelve months to June 2023).

Therefore, Greenthesis has an ROCE of 11%. On its own, that's a standard return, however it's much better than the 8.9% generated by the Commercial Services industry.

See our latest analysis for Greenthesis

Historical performance is a great place to start when researching a stock so above you can see the gauge for Greenthesis' ROCE against it's prior returns. If you'd like to look at how Greenthesis has performed in the past in other metrics, you can view this free graph of Greenthesis' past earnings, revenue and cash flow.

The Trend Of ROCE

The trends we've noticed at Greenthesis are quite reassuring. Over the last five years, returns on capital employed have risen substantially to 11%. The amount of capital employed has increased too, by 320%. So we're very much inspired by what we're seeing at Greenthesis thanks to its ability to profitably reinvest capital.

One more thing to note, Greenthesis has decreased current liabilities to 29% of total assets over this period, which effectively reduces the amount of funding from suppliers or short-term creditors. So shareholders would be pleased that the growth in returns has mostly come from underlying business performance.

The Bottom Line

To sum it up, Greenthesis has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. Since the stock has returned a staggering 539% to shareholders over the last five years, it looks like investors are recognizing these changes. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.

One final note, you should learn about the 2 warning signs we've spotted with Greenthesis (including 1 which makes us a bit uncomfortable) .

While Greenthesis 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.