Fabryki Mebli FORTE (WSE:FTE) Has Some Way To Go To Become A Multi-Bagger

To find a multi-bagger stock, what are the underlying trends we should look for in a business? Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. That's why when we briefly looked at Fabryki Mebli FORTE's (WSE:FTE) ROCE trend, we were pretty happy with what we saw.

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 Fabryki Mebli FORTE:

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

0.18 = zł209m ÷ (zł1.5b - zł283m) (Based on the trailing twelve months to September 2021).

Therefore, Fabryki Mebli FORTE has an ROCE of 18%. On its own, that's a standard return, however it's much better than the 13% generated by the Consumer Durables industry.

See our latest analysis for Fabryki Mebli FORTE

In the above chart we have measured Fabryki Mebli FORTE's prior ROCE against its prior performance, but the future is arguably more important. If you'd like to see what analysts are forecasting going forward, you should check out our free report for Fabryki Mebli FORTE.

The Trend Of ROCE

The trend of ROCE doesn't stand out much, but returns on a whole are decent. The company has employed 57% more capital in the last five years, and the returns on that capital have remained stable at 18%. Since 18% is a moderate ROCE though, it's good to see a business can continue to reinvest at these decent rates of return. Stable returns in this ballpark can be unexciting, but if they can be maintained over the long run, they often provide nice rewards to shareholders.

The Bottom Line

The main thing to remember is that Fabryki Mebli FORTE has proven its ability to continually reinvest at respectable rates of return. However, despite the favorable fundamentals, the stock has fallen 53% over the last five years, so there might be an opportunity here for astute investors. That's why we think it'd be worthwhile to look further into this stock given the fundamentals are appealing.

If you want to know some of the risks facing Fabryki Mebli FORTE we've found 4 warning signs (1 is significant!) that you should be aware of before investing here.

While Fabryki Mebli FORTE isn't earning the highest return, check out this free list of companies that are 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.