Capital Investment Trends At Agroton (WSE:AGT) Look Strong

There are a few key trends to look for if we want to identify the next multi-bagger. Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's amount of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. With that in mind, the ROCE of Agroton (WSE:AGT) looks attractive right now, so lets see what the trend of returns can tell us.

Return On Capital Employed (ROCE): What is it?

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. Analysts use this formula to calculate it for Agroton:

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

0.22 = US$25m ÷ (US$122m - US$9.3m) (Based on the trailing twelve months to June 2021).

Thus, Agroton has an ROCE of 22%. That's a fantastic return and not only that, it outpaces the average of 8.8% earned by companies in a similar industry.

View our latest analysis for Agroton

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

What The Trend Of ROCE Can Tell Us

It's hard not to be impressed by Agroton's returns on capital. Over the past five years, ROCE has remained relatively flat at around 22% and the business has deployed 53% more capital into its operations. Now considering ROCE is an attractive 22%, this combination is actually pretty appealing because it means the business can consistently put money to work and generate these high returns. If Agroton can keep this up, we'd be very optimistic about its future.

The Bottom Line On Agroton's ROCE

Agroton has demonstrated its proficiency by generating high returns on increasing amounts of capital employed, which we're thrilled about. However, over the last five years, the stock hasn't provided much growth to shareholders in the way of total returns. For that reason, savvy investors might want to look further into this company in case it's a prime investment.

Agroton does have some risks, we noticed 4 warning signs (and 1 which is significant) we think you should know about.

If you want to search for more stocks that have been earning high returns, check out this free list of stocks with solid balance sheets that are also earning high returns on equity.

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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.