The Trends At R22 (WSE:R22) That You Should Know About

What trends should we look for it we want to identify stocks that can multiply in value over the long term? Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's amount of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. That's why when we briefly looked at R22's (WSE:R22) ROCE trend, we were pretty happy with what we saw.

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. The formula for this calculation on R22 is:

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

0.15 = zł37m ÷ (zł320m - zł72m) (Based on the trailing twelve months to June 2020).

So, R22 has an ROCE of 15%. On its own, that's a standard return, however it's much better than the 5.3% generated by the Telecom industry.

Check out our latest analysis for R22

Historical performance is a great place to start when researching a stock so above you can see the gauge for R22's ROCE against it's prior returns. If you want to delve into the historical earnings, revenue and cash flow of R22, check out these free graphs here.

What Does the ROCE Trend For R22 Tell Us?

While the returns on capital are good, they haven't moved much. The company has consistently earned 15% for the last four years, and the capital employed within the business has risen 312% in that time. Since 15% is a moderate ROCE though, it's good to see a business can continue to reinvest at these decent rates of return. Stable returns in this ballpark can be unexciting, but if they can be maintained over the long run, they often provide nice rewards to shareholders.

The Bottom Line

In the end, R22 has proven its ability to adequately reinvest capital at good rates of return. And long term investors would be thrilled with the 124% return they've received over the last three years. So while investors seem to be recognizing these promising trends, we still believe the stock deserves further research.

On a separate note, we've found 3 warning signs for R22 you'll probably want to know about.

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. 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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