Stock Analysis

Returns On Capital At Neosperience (BIT:NSP) Paint A Concerning Picture

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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. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. Although, when we looked at Neosperience (BIT:NSP), it didn't seem to tick all of these boxes.

Understanding Return On Capital Employed (ROCE)

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. The formula for this calculation on Neosperience is:

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

0.038 = €1.5m ÷ (€53m - €14m) (Based on the trailing twelve months to June 2022).

Therefore, Neosperience has an ROCE of 3.8%. In absolute terms, that's a low return and it also under-performs the Software industry average of 7.9%.

Check out our latest analysis for Neosperience

roce
BIT:NSP Return on Capital Employed March 16th 2023

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're interested, you can view the analysts predictions in our free report on analyst forecasts for the company.

The Trend Of ROCE

In terms of Neosperience's historical ROCE movements, the trend isn't fantastic. To be more specific, ROCE has fallen from 5.2% over the last five years. Although, given both revenue and the amount of assets employed in the business have increased, it could suggest the company is investing in growth, and the extra capital has led to a short-term reduction in ROCE. And if the increased capital generates additional returns, the business, and thus shareholders, will benefit in the long run.

What We Can Learn From Neosperience's ROCE

In summary, despite lower returns in the short term, we're encouraged to see that Neosperience is reinvesting for growth and has higher sales as a result. However, total returns to shareholders over the last three years have been flat, which could indicate these growth trends potentially aren't accounted for yet by investors. As a result, we'd recommend researching this stock further to uncover what other fundamentals of the business can show us.

If you want to know some of the risks facing Neosperience we've found 4 warning signs (1 is a bit concerning!) that you should be aware of before investing here.

While Neosperience isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

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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