I Grandi Viaggi (BIT:IGV) Might Have The Makings Of A Multi-Bagger

What trends should we look for it we want to identify stocks that can multiply in value over the long term? Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base 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. Speaking of which, we noticed some great changes in I Grandi Viaggi's (BIT:IGV) returns on capital, so let's have a look.

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Return On Capital Employed (ROCE): What Is It?

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. Analysts use this formula to calculate it for I Grandi Viaggi:

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

0.036 = €2.8m ÷ (€115m - €38m) (Based on the trailing twelve months to July 2024).

Thus, I Grandi Viaggi has an ROCE of 3.6%. Ultimately, that's a low return and it under-performs the Hospitality industry average of 8.1%.

Check out our latest analysis for I Grandi Viaggi

While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you'd like to look at how I Grandi Viaggi has performed in the past in other metrics, you can view this free graph of I Grandi Viaggi's past earnings, revenue and cash flow.

What Can We Tell From I Grandi Viaggi's ROCE Trend?

I Grandi Viaggi has broken into the black (profitability) and we're sure it's a sight for sore eyes. The company was generating losses five years ago, but has managed to turn it around and as we saw earlier is now earning 3.6%, which is always encouraging. While returns have increased, the amount of capital employed by I Grandi Viaggi has remained flat over the period. So while we're happy that the business is more efficient, just keep in mind that could mean that going forward the business is lacking areas to invest internally for growth. After all, a company can only become a long term multi-bagger if it continually reinvests in itself at high rates of return.

The Bottom Line

As discussed above, I Grandi Viaggi appears to be getting more proficient at generating returns since capital employed has remained flat but earnings (before interest and tax) are up. And investors seem to expect more of this going forward, since the stock has rewarded shareholders with a 81% return over the last five years. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.

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While I Grandi Viaggi 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.