Aalberts (AMS:AALB) Hasn't Managed To Accelerate Its Returns

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. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. So, when we ran our eye over Aalberts' (AMS:AALB) trend of ROCE, we liked what we saw.

Return On Capital Employed (ROCE): What is it?

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. Analysts use this formula to calculate it for Aalberts:

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

0.13 = €312m ÷ (€3.6b - €1.1b) (Based on the trailing twelve months to June 2021).

Thus, Aalberts has an ROCE of 13%. On its own, that's a standard return, however it's much better than the 9.3% generated by the Machinery industry.

See our latest analysis for Aalberts

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

What Can We Tell From Aalberts' ROCE Trend?

While the returns on capital are good, they haven't moved much. Over the past five years, ROCE has remained relatively flat at around 13% and the business has deployed 24% more capital into its operations. Since 13% is a moderate ROCE though, it's good to see a business can continue to reinvest at these decent rates of return. Stable returns in this ballpark can be unexciting, but if they can be maintained over the long run, they often provide nice rewards to shareholders.

In Conclusion...

The main thing to remember is that Aalberts has proven its ability to continually reinvest at respectable rates of return. Therefore it's no surprise that shareholders have earned a respectable 93% return if they held over the last five years. So while the positive underlying trends may be accounted for by investors, we still think this stock is worth looking into further.

If you're still interested in Aalberts it's worth checking out our FREE intrinsic value approximation to see if it's trading at an attractive price in other respects.

While Aalberts 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.

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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.
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