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

To find a multi-bagger stock, what are the underlying trends we should look for in a business? Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. With that in mind, the ROCE of Aalberts (AMS:AALB) looks decent, right now, so lets see what the trend of returns can tell us.

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. Analysts use this formula to calculate it for Aalberts:

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

0.12 = €379m ÷ (€4.3b - €1.2b) (Based on the trailing twelve months to June 2022).

Thus, Aalberts has an ROCE of 12%. That's a relatively normal return on capital, and it's around the 10% generated by the Machinery industry.

View our latest analysis for Aalberts

In the above chart we have measured Aalberts' prior ROCE against its prior performance, but the future is arguably more important. If you're interested, you can view the analysts predictions in our free report on analyst forecasts for the company.

How Are Returns Trending?

While the current returns on capital are decent, they haven't changed much. The company has consistently earned 12% for the last five years, and the capital employed within the business has risen 44% in that time. 12% is a pretty standard return, and it provides some comfort knowing that Aalberts has consistently earned this amount. Over long periods of time, returns like these might not be too exciting, but with consistency they can pay off in terms of share price returns.

In Conclusion...

The main thing to remember is that Aalberts has proven its ability to continually reinvest at respectable rates of return. In light of this, the stock has only gained 27% over the last five years for shareholders who have owned the stock in this period. So to determine if Aalberts is a multi-bagger going forward, we'd suggest digging deeper into the company's other fundamentals.

Aalberts does have some risks though, and we've spotted 2 warning signs for Aalberts that you might be interested in.

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

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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.