Shareholders Are Optimistic That Addtech AB (publ.) (STO:ADDT B) Will Multiply In Value

To find a multi-bagger stock, what are the underlying trends we should look for in a business? 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, when we ran our eye over Addtech AB (publ.)'s (STO:ADDT B) trend of ROCE, we really liked what we saw.

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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 = kr2.7b ÷ (kr19b - kr5.4b) (Based on the trailing twelve months to December 2024).

Thus, Addtech AB (publ.) has an ROCE of 20%. That's a fantastic return and not only that, it outpaces the average of 11% earned by companies in a similar industry.

View our latest analysis for Addtech AB (publ.)

In the above chart we have measured Addtech AB (publ.)'s 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 Addtech AB (publ.) .

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

We'd be pretty happy with returns on capital like Addtech AB (publ.). The company has consistently earned 20% for the last five years, and the capital employed within the business has risen 177% in that time. With returns that high, it's great that the business can continually reinvest its money at such appealing rates of return. 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 29% of total assets over the last five years. This can eliminate some of the risks inherent in the operations because the business has less outstanding obligations to their suppliers and or short-term creditors than they did previously.

What We Can Learn From Addtech AB (publ.)'s ROCE

In the end, the company has proven it can reinvest it's capital at high rates of returns, which you'll remember is a trait of a multi-bagger. And the stock has done incredibly well with a 362% return over the last five years, so long term investors are no doubt ecstatic with that result. So even though the stock might be more "expensive" than it was before, we think the strong fundamentals warrant this stock for further research.

One more thing to note, we've identified 1 warning sign with Addtech AB (publ.) and understanding it should be part of your investment process.

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.