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

By
Simply Wall St
Published
January 12, 2022
BIT:SOL
Source: Shutterstock

If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out for. In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. 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 SOL's (BIT:SOL) returns on capital, so let's have a look.

Understanding Return On Capital Employed (ROCE)

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 SOL:

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

0.13 = €149m ÷ (€1.4b - €298m) (Based on the trailing twelve months to June 2021).

So, SOL has an ROCE of 13%. In absolute terms, that's a pretty normal return, and it's somewhat close to the Chemicals industry average of 12%.

Check out our latest analysis for SOL

roce
BIT:SOL Return on Capital Employed January 12th 2022

Historical performance is a great place to start when researching a stock so above you can see the gauge for SOL's ROCE against it's prior returns. If you want to delve into the historical earnings, revenue and cash flow of SOL, check out these free graphs here.

So How Is SOL's ROCE Trending?

SOL is displaying some positive trends. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 13%. The amount of capital employed has increased too, by 44%. So we're very much inspired by what we're seeing at SOL thanks to its ability to profitably reinvest capital.

The Bottom Line

In summary, it's great to see that SOL can compound returns by consistently reinvesting capital at increasing rates of return, because these are some of the key ingredients of those highly sought after multi-baggers. And with the stock having performed exceptionally well over the last five years, these patterns are being accounted for by investors. In light of that, we think it's worth looking further into this stock because if SOL can keep these trends up, it could have a bright future ahead.

On the other side of ROCE, we have to consider valuation. That's why we have a FREE intrinsic value estimation on our platform that is definitely worth checking out.

While SOL 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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