The Trend Of High Returns At GVS (BIT:GVS) Has Us Very Interested

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. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. So when we looked at the ROCE trend of GVS (BIT:GVS) we really liked what we saw.

What is Return On Capital Employed (ROCE)?

For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. Analysts use this formula to calculate it for GVS:

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

0.43 = €153m ÷ (€459m - €100m) (Based on the trailing twelve months to March 2021).

Therefore, GVS has an ROCE of 43%. That's a fantastic return and not only that, it outpaces the average of 14% earned by companies in a similar industry.

View our latest analysis for GVS

Above you can see how the current ROCE for GVS 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 GVS here for free.

What Does the ROCE Trend For GVS Tell Us?

The trends we've noticed at GVS are quite reassuring. The data shows that returns on capital have increased substantially over the last five years to 43%. The company is effectively making more money per dollar of capital used, and it's worth noting that the amount of capital has increased too, by 194%. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, a combination that's common among multi-baggers.

What We Can Learn From GVS' ROCE

A company that is growing its returns on capital and can consistently reinvest in itself is a highly sought after trait, and that's what GVS has. And investors seem to expect more of this going forward, since the stock has rewarded shareholders with a 18% return over the last year. Therefore, we think it would be worth your time to check if these trends are going to continue.

While GVS looks impressive, no company is worth an infinite price. The intrinsic value infographic in our free research report helps visualize whether GVS is currently trading for a fair price.

If you'd like to see other companies earning high returns, check out our free list of companies earning high returns with solid balance sheets here.

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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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