Semapa - Sociedade de Investimento e Gestão SGPS (ELI:SEM) Might Have The Makings Of A Multi-Bagger

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. So on that note, Semapa - Sociedade de Investimento e Gestão SGPS (ELI:SEM) looks quite promising in regards to its trends of return on capital.

Our free stock report includes 2 warning signs investors should be aware of before investing in Semapa - Sociedade de Investimento e Gestão SGPS. Read for free now.

What Is Return On Capital Employed (ROCE)?

For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. To calculate this metric for Semapa - Sociedade de Investimento e Gestão SGPS, this is the formula:

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

0.12 = €431m ÷ (€5.0b - €1.4b) (Based on the trailing twelve months to December 2024).

So, Semapa - Sociedade de Investimento e Gestão SGPS has an ROCE of 12%. On its own, that's a standard return, however it's much better than the 6.2% generated by the Forestry industry.

View our latest analysis for Semapa - Sociedade de Investimento e Gestão SGPS

Above you can see how the current ROCE for Semapa - Sociedade de Investimento e Gestão SGPS compares to its prior returns on capital, but there's only so much you can tell from the past. If you're interested, you can view the analysts predictions in our free analyst report for Semapa - Sociedade de Investimento e Gestão SGPS .

What Can We Tell From Semapa - Sociedade de Investimento e Gestão SGPS' ROCE Trend?

Semapa - Sociedade de Investimento e Gestão SGPS has not disappointed with their ROCE growth. The figures show that over the last five years, ROCE has grown 75% whilst employing roughly the same amount of capital. So our take on this is that the business has increased efficiencies to generate these higher returns, all the while not needing to make any additional investments. The company is doing well in that sense, and it's worth investigating what the management team has planned for long term growth prospects.

Our Take On Semapa - Sociedade de Investimento e Gestão SGPS' ROCE

In summary, we're delighted to see that Semapa - Sociedade de Investimento e Gestão SGPS has been able to increase efficiencies and earn higher rates of return on the same amount of capital. And with the stock having performed exceptionally well over the last five years, these patterns are being accounted for by investors. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.

One more thing, we've spotted 2 warning signs facing Semapa - Sociedade de Investimento e Gestão SGPS that you might find interesting.

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and 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.