Investors Will Want Nordisk Bergteknik's (STO:NORB B) Growth In ROCE To Persist

To find a multi-bagger stock, what are the underlying trends we should look for in a business? Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. So on that note, Nordisk Bergteknik (STO:NORB B) looks quite promising in regards to its trends of return on capital.

Understanding 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. Analysts use this formula to calculate it for Nordisk Bergteknik:

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

0.06 = kr144m ÷ (kr3.1b - kr705m) (Based on the trailing twelve months to June 2022).

Thus, Nordisk Bergteknik has an ROCE of 6.0%. Ultimately, that's a low return and it under-performs the Construction industry average of 11%.

Check out the opportunities and risks within the SE Construction industry.

Above you can see how the current ROCE for Nordisk Bergteknik 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 report on analyst forecasts for the company.

What Does the ROCE Trend For Nordisk Bergteknik Tell Us?

While in absolute terms it isn't a high ROCE, it's promising to see that it has been moving in the right direction. The numbers show that in the last three years, the returns generated on capital employed have grown considerably to 6.0%. Basically the business is earning more per dollar of capital invested and in addition to that, 234% more capital is being employed now too. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, a combination that's common among multi-baggers.

The Key Takeaway

A company that is growing its returns on capital and can consistently reinvest in itself is a highly sought after trait, and that's what Nordisk Bergteknik has. And investors seem to expect more of this going forward, since the stock has rewarded shareholders with a 32% return over the last year. In light of that, we think it's worth looking further into this stock because if Nordisk Bergteknik can keep these trends up, it could have a bright future ahead.

One more thing, we've spotted 2 warning signs facing Nordisk Bergteknik that you might find interesting.

While Nordisk Bergteknik may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.

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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.