To find a multi-bagger stock, what are the underlying trends we should look for in a business? Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. However, after investigating Global Cosmed (WSE:GLC), we don't think it's current trends fit the mold of a multi-bagger.
Understanding 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. The formula for this calculation on Global Cosmed is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.095 = zł23m ÷ (zł339m - zł95m) (Based on the trailing twelve months to September 2020).
Therefore, Global Cosmed has an ROCE of 9.5%. On its own, that's a low figure but it's around the 8.3% average generated by the Personal Products industry.
View our latest analysis for Global Cosmed
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 want to delve into the historical earnings, revenue and cash flow of Global Cosmed, check out these free graphs here.
What Does the ROCE Trend For Global Cosmed Tell Us?
There are better returns on capital out there than what we're seeing at Global Cosmed. Over the past five years, ROCE has remained relatively flat at around 9.5% and the business has deployed 152% more capital into its operations. This poor ROCE doesn't inspire confidence right now, and with the increase in capital employed, it's evident that the business isn't deploying the funds into high return investments.
The Bottom Line
In conclusion, Global Cosmed has been investing more capital into the business, but returns on that capital haven't increased. Unsurprisingly, the stock has only gained 21% over the last five years, which potentially indicates that investors are accounting for this going forward. Therefore, if you're looking for a multi-bagger, we'd propose looking at other options.
On a separate note, we've found 1 warning sign for Global Cosmed you'll probably want to know about.
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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This article by Simply Wall St is general in nature. 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.
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About WSE:DMG
Dr. Miele Cosmed Group
Engages in the production and sale of chemical and cosmetic assortments in Poland and internationally.
Flawless balance sheet with solid track record.
