Returns Are Gaining Momentum At FM Mattsson Mora Group (STO:FMM B)

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. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. So on that note, FM Mattsson Mora Group (STO:FMM B) looks quite promising in regards to its trends of return on capital.

What Is 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. To calculate this metric for FM Mattsson Mora Group, this is the formula:

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

0.17 = kr242m ÷ (kr1.9b - kr492m) (Based on the trailing twelve months to March 2023).

Therefore, FM Mattsson Mora Group has an ROCE of 17%. On its own, that's a standard return, however it's much better than the 12% generated by the Building industry.

See our latest analysis for FM Mattsson Mora Group

Historical performance is a great place to start when researching a stock so above you can see the gauge for FM Mattsson Mora Group's ROCE against it's prior returns. If you'd like to look at how FM Mattsson Mora Group has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.

So How Is FM Mattsson Mora Group's ROCE Trending?

We like the trends that we're seeing from FM Mattsson Mora Group. The data shows that returns on capital have increased substantially over the last five years to 17%. The company is effectively making more money per dollar of capital used, and it's worth noting that the amount of capital has increased too, by 93%. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.

The Key Takeaway

All in all, it's terrific to see that FM Mattsson Mora Group is reaping the rewards from prior investments and is growing its capital base. Since the stock has returned a staggering 176% to shareholders over the last five years, it looks like investors are recognizing these changes. So given the stock has proven it has promising trends, it's worth researching the company further to see if these trends are likely to persist.

One more thing to note, we've identified 1 warning sign with FM Mattsson Mora Group and understanding this should be part of your investment process.

While FM Mattsson Mora 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.