TIM (WSE:TIM) Could Become A Multi-Bagger

What are the early trends we should look for to identify a stock that could multiply in value over the long term? Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. Speaking of which, we noticed some great changes in TIM's (WSE:TIM) returns on capital, so let's have a look.

Understanding 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. To calculate this metric for TIM, this is the formula:

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

0.33 = zł133m ÷ (zł642m - zł243m) (Based on the trailing twelve months to September 2022).

So, TIM has an ROCE of 33%. In absolute terms that's a great return and it's even better than the Trade Distributors industry average of 25%.

View our latest analysis for TIM

Historical performance is a great place to start when researching a stock so above you can see the gauge for TIM's ROCE against it's prior returns. If you want to delve into the historical earnings, revenue and cash flow of TIM, check out these free graphs here.

So How Is TIM's ROCE Trending?

The fact that TIM is now generating some pre-tax profits from its prior investments is very encouraging. About five years ago the company was generating losses but things have turned around because it's now earning 33% on its capital. Not only that, but the company is utilizing 106% 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 TIM's ROCE

To the delight of most shareholders, TIM has now broken into profitability. And a remarkable 567% total return over the last five years tells us that investors are expecting more good things to come in the future. In light of that, we think it's worth looking further into this stock because if TIM can keep these trends up, it could have a bright future ahead.

If you'd like to know about the risks facing TIM, we've discovered 1 warning sign that 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.