Alerion Clean Power (BIT:ARN) Is Doing The Right Things To Multiply Its Share Price

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. With that in mind, we've noticed some promising trends at Alerion Clean Power (BIT:ARN) so let's look a bit deeper.

What Is Return On Capital Employed (ROCE)?

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. Analysts use this formula to calculate it for Alerion Clean Power:

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

0.056 = €69m ÷ (€1.4b - €191m) (Based on the trailing twelve months to June 2024).

Therefore, Alerion Clean Power has an ROCE of 5.6%. Even though it's in line with the industry average of 6.3%, it's still a low return by itself.

View our latest analysis for Alerion Clean Power

Above you can see how the current ROCE for Alerion Clean Power 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 analyst report for Alerion Clean Power .

What Does the ROCE Trend For Alerion Clean Power Tell Us?

We're glad to see that ROCE is heading in the right direction, even if it is still low at the moment. The data shows that returns on capital have increased substantially over the last five years to 5.6%. The amount of capital employed has increased too, by 157%. So we're very much inspired by what we're seeing at Alerion Clean Power thanks to its ability to profitably reinvest capital.

In Conclusion...

All in all, it's terrific to see that Alerion Clean Power is reaping the rewards from prior investments and is growing its capital base. Since the stock has returned a staggering 205% to shareholders over the last five years, it looks like investors are recognizing these changes. 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.

Alerion Clean Power does have some risks, we noticed 4 warning signs (and 2 which are potentially serious) we think you should know about.

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive returns on equity.

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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.