Stock Analysis

Neosperience (BIT:NSP) Hasn't Managed To Accelerate Its Returns

BIT:NSP
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If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. 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. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. However, after investigating Neosperience (BIT:NSP), we don't think it's current trends fit the mold of a multi-bagger.

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

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. Analysts use this formula to calculate it for Neosperience:

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

0.04 = €1.5m ÷ (€48m - €11m) (Based on the trailing twelve months to December 2021).

Therefore, Neosperience has an ROCE of 4.0%. In absolute terms, that's a low return and it also under-performs the Software industry average of 7.4%.

Check out our latest analysis for Neosperience

roce
BIT:NSP Return on Capital Employed September 1st 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.

What The Trend Of ROCE Can Tell Us

There are better returns on capital out there than what we're seeing at Neosperience. The company has consistently earned 4.0% for the last five years, and the capital employed within the business has risen 540% in that time. This poor ROCE doesn't inspire confidence right now, and with the increase in capital employed, it's evident that the business isn't deploying the funds into high return investments.

One more thing to note, even though ROCE has remained relatively flat over the last five years, the reduction in current liabilities to 22% of total assets, is good to see from a business owner's perspective. 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.

In Conclusion...

In summary, Neosperience has simply been reinvesting capital and generating the same low rate of return as before. And in the last three years, the stock has given away 67% so the market doesn't look too hopeful on these trends strengthening any time soon. Therefore based on the analysis done in this article, we don't think Neosperience has the makings of a multi-bagger.

One final note, you should learn about the 3 warning signs we've spotted with Neosperience (including 1 which shouldn't be ignored) .

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high returns on equity.

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.