Returns At Euglena (TSE:2931) Are On The Way Up

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. Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. With that in mind, we've noticed some promising trends at Euglena (TSE:2931) so let's look a bit deeper.

Trump has pledged to "unleash" American oil and gas and these 15 US stocks have developments that are poised to benefit.

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

For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. The formula for this calculation on Euglena is:

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

0.005 = JP¥302m ÷ (JP¥73b - JP¥13b) (Based on the trailing twelve months to December 2024).

So, Euglena has an ROCE of 0.5%. In absolute terms, that's a low return and it also under-performs the Personal Products industry average of 9.0%.

Check out our latest analysis for Euglena

Historical performance is a great place to start when researching a stock so above you can see the gauge for Euglena's ROCE against it's prior returns. If you're interested in investigating Euglena's past further, check out this free graph covering Euglena's past earnings, revenue and cash flow.

How Are Returns Trending?

The fact that Euglena is now generating some pre-tax profits from its prior investments is very encouraging. Shareholders would no doubt be pleased with this because the business was loss-making five years ago but is is now generating 0.5% on its capital. Not only that, but the company is utilizing 323% more capital than before, but that's to be expected from a company trying to break into profitability. We like this trend, because it tells us the company has profitable reinvestment opportunities available to it, and if it continues going forward that can lead to a multi-bagger performance.

The Bottom Line On Euglena's ROCE

Overall, Euglena gets a big tick from us thanks in most part to the fact that it is now profitable and is reinvesting in its business. And since the stock has fallen 22% over the last five years, there might be an opportunity here. So researching this company further and determining whether or not these trends will continue seems justified.

Like most companies, Euglena does come with some risks, and we've found 1 warning sign that you should be aware of.

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

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.