Grupa RECYKL (WSE:GRC) Is Doing The Right Things To Multiply Its Share Price

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. Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base 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. Speaking of which, we noticed some great changes in Grupa RECYKL's (WSE:GRC) returns on capital, so let's have a look.

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. To calculate this metric for Grupa RECYKL, this is the formula:

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

0.17 = zł17m ÷ (zł143m - zł40m) (Based on the trailing twelve months to December 2021).

Therefore, Grupa RECYKL has an ROCE of 17%. In absolute terms, that's a satisfactory return, but compared to the Commercial Services industry average of 13% it's much better.

See our latest analysis for Grupa RECYKL

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

What Does the ROCE Trend For Grupa RECYKL Tell Us?

The trends we've noticed at Grupa RECYKL are quite reassuring. Over the last five years, returns on capital employed have risen substantially to 17%. Basically the business is earning more per dollar of capital invested and in addition to that, 127% more capital is being employed now too. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.

The Bottom Line

All in all, it's terrific to see that Grupa RECYKL is reaping the rewards from prior investments and is growing its capital base. And a remarkable 435% total return over the last five years tells us that investors are expecting more good things to come in the future. 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.

One more thing to note, we've identified 2 warning signs with Grupa RECYKL and understanding these should be part of your investment process.

While Grupa RECYKL 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.