We Think Inter Cars (WSE:CAR) Might Have The DNA Of A Multi-Bagger

What are the early trends we should look for to identify a stock that could multiply in value over the long term? Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base 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 the ROCE trend of Inter Cars (WSE:CAR) we really liked what we saw.

Return On Capital Employed (ROCE): What Is It?

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 Inter Cars:

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

0.20 = zł1.2b ÷ (zł9.6b - zł3.7b) (Based on the trailing twelve months to September 2023).

Thus, Inter Cars has an ROCE of 20%. In absolute terms that's a great return and it's even better than the Retail Distributors industry average of 15%.

View our latest analysis for Inter Cars

Above you can see how the current ROCE for Inter Cars compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like to see what analysts are forecasting going forward, you should check out our free analyst report for Inter Cars .

So How Is Inter Cars' ROCE Trending?

Inter Cars is displaying some positive trends. The data shows that returns on capital have increased substantially over the last five years to 20%. The company is effectively making more money per dollar of capital used, and it's worth noting that the amount of capital has increased too, by 140%. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, a combination that's common among multi-baggers.

The Bottom Line

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 Inter Cars has. And a remarkable 155% total return over the last five years tells us that investors are expecting more good things to come in the future. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.

Like most companies, Inter Cars does come with some risks, and we've found 1 warning sign that you should be aware of.

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.