Stock Analysis

Neosperience (BIT:NSP) Has Some Way To Go To Become A Multi-Bagger

BIT:NSP
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To find a multi-bagger stock, what are the underlying trends we should look for in a business? 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. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. Having said that, from a first glance at Neosperience (BIT:NSP) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper 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. To calculate this metric for Neosperience, this is the formula:

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

0.045 = €1.4m ÷ (€38m - €7.7m) (Based on the trailing twelve months to June 2021).

So, Neosperience has an ROCE of 4.5%. In absolute terms, that's a low return and it also under-performs the Software industry average of 10%.

View our latest analysis for Neosperience

roce
BIT:NSP Return on Capital Employed March 7th 2022

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

So How Is Neosperience's ROCE Trending?

The returns on capital haven't changed much for Neosperience in recent years. Over the past four years, ROCE has remained relatively flat at around 4.5% and the business has deployed 356% more capital into its operations. Given the company has increased the amount of capital employed, it appears the investments that have been made simply don't provide a high return on capital.

On a side note, Neosperience has done well to reduce current liabilities to 20% of total assets over the last four years. This can eliminate some of the risks inherent in the operations because the business has less outstanding obligations to their suppliers and or short-term creditors than they did previously.

The Bottom Line On Neosperience's ROCE

Long story short, while Neosperience has been reinvesting its capital, the returns that it's generating haven't increased. Additionally, the stock's total return to shareholders over the last three years has been flat, which isn't too surprising. Therefore based on the analysis done in this article, we don't think Neosperience has the makings of a multi-bagger.

On a final note, we've found 4 warning signs for Neosperience that we think you should be aware of.

While Neosperience 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.

Valuation is complex, but we're helping make it simple.

Find out whether Neosperience is potentially over or undervalued by checking out our comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, insider transactions and financial health.

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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.