We Think Magis (BIT:MGS) Might Have The DNA Of A Multi-Bagger

If you're looking for a multi-bagger, there's a few things to keep an eye out for. Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's 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. And in light of that, the trends we're seeing at Magis' (BIT:MGS) look very promising so lets take a look.

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

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

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

0.24 = €12m ÷ (€74m - €23m) (Based on the trailing twelve months to June 2024).

Thus, Magis has an ROCE of 24%. That's a fantastic return and not only that, it outpaces the average of 9.8% earned by companies in a similar industry.

See our latest analysis for Magis

Above you can see how the current ROCE for Magis 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 Magis for free.

So How Is Magis' ROCE Trending?

Magis is displaying some positive trends. Over the last three years, returns on capital employed have risen substantially to 24%. 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 57%. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.

What We Can Learn From Magis' ROCE

All in all, it's terrific to see that Magis is reaping the rewards from prior investments and is growing its capital base. And with a respectable 31% awarded to those who held the stock over the last year, you could argue that these developments are starting to get the attention they deserve. So given the stock has proven it has promising trends, it's worth researching the company further to see if these trends are likely to persist.

On a final note, we've found 1 warning sign for Magis that we think you should be aware of.

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. 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.