Alimak Group (STO:ALIG) Hasn't Managed To Accelerate Its Returns

If you're looking for a multi-bagger, there's a few things to keep an eye out for. 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. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. However, after investigating Alimak Group (STO:ALIG), we don't think it's current trends fit the mold of a multi-bagger.

Understanding Return On Capital Employed (ROCE)

For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. Analysts use this formula to calculate it for Alimak Group:

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

0.082 = kr481m ÷ (kr7.1b - kr1.2b) (Based on the trailing twelve months to September 2022).

Therefore, Alimak Group has an ROCE of 8.2%. Ultimately, that's a low return and it under-performs the Machinery industry average of 13%.

Check out our latest analysis for Alimak Group

In the above chart we have measured Alimak Group's prior ROCE against its prior performance, but the future is arguably more important. If you'd like, you can check out the forecasts from the analysts covering Alimak Group here for free.

What Does the ROCE Trend For Alimak Group Tell Us?

In terms of Alimak Group's historical ROCE trend, it doesn't exactly demand attention. The company has consistently earned 8.2% for the last five years, and the capital employed within the business has risen 26% in that time. This poor ROCE doesn't inspire confidence right now, and with the increase in capital employed, it's evident that the business isn't deploying the funds into high return investments.

What We Can Learn From Alimak Group's ROCE

As we've seen above, Alimak Group's returns on capital haven't increased but it is reinvesting in the business. Since the stock has declined 36% over the last five years, investors may not be too optimistic on this trend improving either. In any case, the stock doesn't have these traits of a multi-bagger discussed above, so if that's what you're looking for, we think you'd have more luck elsewhere.

If you want to continue researching Alimak Group, you might be interested to know about the 1 warning sign that our analysis has discovered.

While Alimak Group 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.