Stock Analysis

K2 Holding (WSE:K2H) Is Looking To Continue Growing Its Returns On Capital

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WSE:K2H
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To find a multi-bagger stock, what are the underlying trends we should look for in a business? Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. So when we looked at K2 Holding (WSE:K2H) and its trend of ROCE, we really liked what we saw.

Understanding 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 K2 Holding:

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

0.11 = zł6.3m ÷ (zł76m - zł20m) (Based on the trailing twelve months to June 2022).

So, K2 Holding has an ROCE of 11%. In isolation, that's a pretty standard return but against the Media industry average of 19%, it's not as good.

View our latest analysis for K2 Holding

roce
WSE:K2H Return on Capital Employed September 29th 2022

Historical performance is a great place to start when researching a stock so above you can see the gauge for K2 Holding's ROCE against it's prior returns. If you're interested in investigating K2 Holding's past further, check out this free graph of past earnings, revenue and cash flow.

What Can We Tell From K2 Holding's ROCE Trend?

We like the trends that we're seeing from K2 Holding. Over the last five years, returns on capital employed have risen substantially to 11%. Basically the business is earning more per dollar of capital invested and in addition to that, 90% more capital is being employed now too. So we're very much inspired by what we're seeing at K2 Holding thanks to its ability to profitably reinvest capital.

On a related note, the company's ratio of current liabilities to total assets has decreased to 27%, which basically reduces it's funding from the likes of short-term creditors or suppliers. This tells us that K2 Holding has grown its returns without a reliance on increasing their current liabilities, which we're very happy with.

The Key Takeaway

A company that is growing its returns on capital and can consistently reinvest in itself is a highly sought after trait, and that's what K2 Holding has. Since the stock has returned a staggering 165% to shareholders over the last five years, it looks like investors are recognizing these changes. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.

Since virtually every company faces some risks, it's worth knowing what they are, and we've spotted 3 warning signs for K2 Holding (of which 1 can't be ignored!) that you should know about.

While K2 Holding isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

Valuation is complex, but we're helping make it simple.

Find out whether K2 Holding is potentially over or undervalued by checking out our comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, insider transactions and financial health.

View the Free Analysis

About WSE:K2H

K2 Holding

K2 Holding S.A. provides marketing and technological solutions based on AI, Big Data, software, and cloud in Poland.

The Snowflake is a visual investment summary with the score of each axis being calculated by 6 checks in 5 areas.

Analysis AreaScore (0-6)
Valuation4
Future Growth0
Past Performance5
Financial Health6
Dividends3

Read more about these checks in the individual report sections or in our analysis model.

Flawless balance sheet with solid track record.