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

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. 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, the ROCE of Centrum Nowoczesnych Technologii (WSE:CNT) looks great, so lets see what the trend can tell us.

What is Return On Capital Employed (ROCE)?

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. The formula for this calculation on Centrum Nowoczesnych Technologii is:

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

0.43 = zł67m ÷ (zł180m - zł25m) (Based on the trailing twelve months to September 2021).

So, Centrum Nowoczesnych Technologii has an ROCE of 43%. That's a fantastic return and not only that, it outpaces the average of 11% earned by companies in a similar industry.

View our latest analysis for Centrum Nowoczesnych Technologii

Historical performance is a great place to start when researching a stock so above you can see the gauge for Centrum Nowoczesnych Technologii's ROCE against it's prior returns. If you'd like to look at how Centrum Nowoczesnych Technologii has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.

So How Is Centrum Nowoczesnych Technologii's ROCE Trending?

Centrum Nowoczesnych Technologii has recently broken into profitability so their prior investments seem to be paying off. About five years ago the company was generating losses but things have turned around because it's now earning 43% on its capital. And unsurprisingly, like most companies trying to break into the black, Centrum Nowoczesnych Technologii is utilizing 70% more capital than it was five years ago. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, both common traits of a multi-bagger.

On a related note, the company's ratio of current liabilities to total assets has decreased to 14%, which basically reduces it's funding from the likes of short-term creditors or suppliers. Therefore we can rest assured that the growth in ROCE is a result of the business' fundamental improvements, rather than a cooking class featuring this company's books.

The Bottom Line

Long story short, we're delighted to see that Centrum Nowoczesnych Technologii's reinvestment activities have paid off and the company is now profitable. Since the stock has returned a staggering 209% 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.

On a final note, we've found 1 warning sign for Centrum Nowoczesnych Technologii that we think you should be aware of.

High returns are a key ingredient to strong performance, so check out our free list ofstocks 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.