What are the early trends we should look for to identify a stock that could multiply in value over the long term? 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. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. Ergo, when we looked at the ROCE trends at Agroton (WSE:AGT), we liked what we saw.
What is Return On Capital Employed (ROCE)?
Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested 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).
So, Agroton has an ROCE of 22%. In absolute terms that's a great return and it's even better than the Food industry average of 12%.
View our latest analysis for Agroton
While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you're interested in investigating Agroton's past further, check out this free graph of past earnings, revenue and cash flow.
What Does the ROCE Trend For Agroton Tell Us?
It's hard not to be impressed by Agroton's returns on capital. The company has consistently earned 22% for the last five years, and the capital employed within the business has risen 53% in that time. With returns that high, it's great that the business can continually reinvest its money at such appealing rates of return. If Agroton can keep this up, we'd be very optimistic about its future.
The Key Takeaway
In summary, we're delighted to see that Agroton has been compounding returns by reinvesting at consistently high rates of return, as these are common traits of a multi-bagger. Yet over the last five years the stock has declined 27%, so the decline might provide an opening. For that reason, savvy investors might want to look further into this company in case it's a prime investment.
One final note, you should learn about the 5 warning signs we've spotted with Agroton (including 1 which is a bit concerning) .
Agroton is not the only stock earning high returns. If you'd like to see more, check out our free list of companies earning high returns on equity with solid fundamentals.
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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.
About WSE:AGT
Agroton
A diversified vertically integrated agricultural producer, engages in production, processing, storage, and sale of crops in Eastern Ukraine.
Very low with weak fundamentals.
