The Return Trends At Semapa - Sociedade de Investimento e Gestão SGPS (ELI:SEM) Look Promising

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing 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.

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)

0.13 = €454m ÷ (€5.0b - €1.4b) (Based on the trailing twelve months to September 2024).

So, Semapa - Sociedade de Investimento e Gestão SGPS has an ROCE of 13%. On its own, that's a standard return, however it's much better than the 6.2% generated by the Forestry industry.

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

In the above chart we have measured Semapa - Sociedade de Investimento e Gestão SGPS' prior ROCE against its prior performance, but the future is arguably more important. If you're interested, you can view the analysts predictions in our free analyst report for Semapa - Sociedade de Investimento e Gestão SGPS .

What The Trend Of ROCE Can Tell Us

Semapa - Sociedade de Investimento e Gestão SGPS' ROCE growth is quite impressive. The figures show that over the last five years, ROCE has grown 39% 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. It's worth looking deeper into this though because while it's great that the business is more efficient, it might also mean that going forward the areas to invest internally for the organic growth are lacking.

The Key Takeaway

To sum it up, Semapa - Sociedade de Investimento e Gestão SGPS is collecting higher returns from the same amount of capital, and that's impressive. Since the stock has returned a solid 46% to shareholders over the last five years, it's fair to say investors are beginning to recognize these changes. In light of that, we think it's worth looking further into this stock because if Semapa - Sociedade de Investimento e Gestão SGPS can keep these trends up, it could have a bright future ahead.

If you'd like to know more about Semapa - Sociedade de Investimento e Gestão SGPS, we've spotted 3 warning signs, and 1 of them is a bit unpleasant.

While Semapa - Sociedade de Investimento e Gestão SGPS isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

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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.