ESOTIQ & Henderson (WSE:EAH) Is Doing The Right Things To Multiply Its Share Price

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing 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. So on that note, ESOTIQ & Henderson (WSE:EAH) looks quite promising in regards to its trends of return on capital.

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. To calculate this metric for ESOTIQ & Henderson, this is the formula:

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

0.13 = zł13m ÷ (zł141m - zł45m) (Based on the trailing twelve months to March 2021).

So, ESOTIQ & Henderson has an ROCE of 13%. On its own, that's a standard return, however it's much better than the 7.8% generated by the Luxury industry.

See our latest analysis for ESOTIQ & Henderson

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

The Trend Of ROCE

The fact that ESOTIQ & Henderson 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 13% on its capital. In addition to that, ESOTIQ & Henderson is employing 53% more capital than previously which is expected of a company that's 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.

Our Take On ESOTIQ & Henderson's ROCE

Long story short, we're delighted to see that ESOTIQ & Henderson's reinvestment activities have paid off and the company is now profitable. And with the stock having performed exceptionally well over the last five years, these patterns are being accounted for by investors. 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.

Like most companies, ESOTIQ & Henderson does come with some risks, and we've found 2 warning signs that you should be aware of.

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high returns on equity.

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