Addtech AB (publ.) (STO:ADDT B) Is Aiming To Keep Up Its Impressive Returns

What trends should we look for it we want to identify stocks that can multiply in value over the long term? Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. With that in mind, the ROCE of Addtech AB (publ.) (STO:ADDT B) looks attractive right now, so lets see what the trend of returns can tell us.

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 Addtech AB (publ.) is:

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

0.20 = kr2.6b ÷ (kr18b - kr5.1b) (Based on the trailing twelve months to September 2024).

Thus, Addtech AB (publ.) has an ROCE of 20%. In absolute terms that's a great return and it's even better than the Trade Distributors industry average of 13%.

View our latest analysis for Addtech AB (publ.)

Above you can see how the current ROCE for Addtech AB (publ.) 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 Addtech AB (publ.) .

So How Is Addtech AB (publ.)'s ROCE Trending?

Addtech AB (publ.) deserves to be commended in regards to it's returns. The company has employed 171% more capital in the last five years, and the returns on that capital have remained stable at 20%. Returns like this are the envy of most businesses and given it has repeatedly reinvested at these rates, that's even better. If Addtech AB (publ.) can keep this up, we'd be very optimistic about its future.

On a side note, Addtech AB (publ.) has done well to reduce current liabilities to 28% of total assets over the last five years. Effectively suppliers now fund less of the business, which can lower some elements of risk.

The Bottom Line

In summary, we're delighted to see that Addtech AB (publ.) has been compounding returns by reinvesting at consistently high rates of return, as these are common traits of a multi-bagger. On top of that, the stock has rewarded shareholders with a remarkable 339% return to those who've held over the last five years. So even though the stock might be more "expensive" than it was before, we think the strong fundamentals warrant this stock for further research.

Addtech AB (publ.) does have some risks though, and we've spotted 1 warning sign for Addtech AB (publ.) that you might be interested in.

Addtech AB (publ.) is not the only stock earning high returns. If you'd like to see more, check out our free list of companies earning high returns on equity with solid fundamentals.

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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.