Are Investors Overlooking Returns On Capital At Auto Partner (WSE:APR)?

If you're looking for a multi-bagger, there's a few things to keep an eye out for. Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, 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. With that in mind, the ROCE of Auto Partner (WSE:APR) 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 Auto Partner:

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

0.22 = zł131m ÷ (zł796m - zł194m) (Based on the trailing twelve months to September 2020).

So, Auto Partner has an ROCE of 22%. On its own that's a fantastic return on capital, though it's the same as the Specialty Retail industry average of 22%.

See our latest analysis for Auto Partner

Above you can see how the current ROCE for Auto Partner compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like, you can check out the forecasts from the analysts covering Auto Partner here for free.

The Trend Of ROCE

It's hard not to be impressed by Auto Partner's returns on capital. The company has employed 322% more capital in the last five years, and the returns on that capital have remained stable at 22%. 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 these trends can continue, it wouldn't surprise us if the company became a multi-bagger.

On a side note, Auto Partner has done well to reduce current liabilities to 24% of total assets over the last five years. Effectively suppliers now fund less of the business, which can lower some elements of risk.

Our Take On Auto Partner's ROCE

Auto Partner has demonstrated its proficiency by generating high returns on increasing amounts of capital employed, which we're thrilled about. Therefore it's no surprise that shareholders have earned a respectable 72% return if they held over the last three years. So while investors seem to be recognizing these promising trends, we still believe the stock deserves further research.

One more thing, we've spotted 1 warning sign facing Auto Partner that you might find interesting.

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. 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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