The Return Trends At Polaris IT Group (WSE:PIT) Look Promising

To find a multi-bagger stock, what are the underlying trends we should look for in a business? In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. Speaking of which, we noticed some great changes in Polaris IT Group's (WSE:PIT) returns on capital, so let's have a look.

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 Polaris IT Group:

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

0.011 = zł816k ÷ (zł97m - zł23m) (Based on the trailing twelve months to September 2022).

Thus, Polaris IT Group has an ROCE of 1.1%. Ultimately, that's a low return and it under-performs the Specialty Retail industry average of 21%.

View our latest analysis for Polaris IT Group

Historical performance is a great place to start when researching a stock so above you can see the gauge for Polaris IT Group's ROCE against it's prior returns. If you want to delve into the historical earnings, revenue and cash flow of Polaris IT Group, check out these free graphs here.

So How Is Polaris IT Group's ROCE Trending?

The fact that Polaris IT Group is now generating some pre-tax profits from its prior investments is very encouraging. Shareholders would no doubt be pleased with this because the business was loss-making four years ago but is is now generating 1.1% on its capital. And unsurprisingly, like most companies trying to break into the black, Polaris IT Group is utilizing 139,765% more capital than it was four years ago. This can tell us that the company has plenty of reinvestment opportunities that are able to generate higher returns.

The Bottom Line

Overall, Polaris IT Group gets a big tick from us thanks in most part to the fact that it is now profitable and is reinvesting in its business. And since the stock has fallen 34% over the last three years, there might be an opportunity here. With that in mind, we believe the promising trends warrant this stock for further investigation.

One more thing: We've identified 3 warning signs with Polaris IT Group (at least 1 which makes us a bit uncomfortable) , and understanding them would certainly be useful.

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive 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.