Centrum Nowoczesnych Technologii (WSE:CNT) Could Become A Multi-Bagger

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. 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. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. And in light of that, the trends we're seeing at Centrum Nowoczesnych Technologii's (WSE:CNT) look very promising so lets take a look.

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 Centrum Nowoczesnych Technologii:

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

0.30 = zł42m ÷ (zł238m - zł99m) (Based on the trailing twelve months to September 2020).

Therefore, Centrum Nowoczesnych Technologii has an ROCE of 30%. That's a fantastic return and not only that, it outpaces the average of 12% earned by companies in a similar industry.

View our latest analysis for Centrum Nowoczesnych Technologii

While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you're interested in investigating Centrum Nowoczesnych Technologii's past further, check out this free graph of past earnings, revenue and cash flow.

What Can We Tell From Centrum Nowoczesnych Technologii's ROCE Trend?

Investors would be pleased with what's happening at Centrum Nowoczesnych Technologii. The data shows that returns on capital have increased substantially over the last five years to 30%. The amount of capital employed has increased too, by 134%. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, a combination that's common among multi-baggers.

On a side note, Centrum Nowoczesnych Technologii's current liabilities are still rather high at 42% of total assets. This effectively means that suppliers (or short-term creditors) are funding a large portion of the business, so just be aware that this can introduce some elements of risk. While it's not necessarily a bad thing, it can be beneficial if this ratio is lower.

The Bottom Line

In summary, it's great to see that Centrum Nowoczesnych Technologii can compound returns by consistently reinvesting capital at increasing rates of return, because these are some of the key ingredients of those highly sought after multi-baggers. Since the stock has returned a staggering 136% to shareholders over the last five years, it looks like investors are recognizing these changes. In light of that, we think it's worth looking further into this stock because if Centrum Nowoczesnych Technologii can keep these trends up, it could have a bright future ahead.

Centrum Nowoczesnych Technologii does have some risks though, and we've spotted 1 warning sign for Centrum Nowoczesnych Technologii that you might be interested in.

If you'd like to see other companies earning high returns, check out our free list of companies earning high returns with solid balance sheets here.

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