Shareholders Would Enjoy A Repeat Of OEM International's (STO:OEM B) Recent Growth In Returns

If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out for. One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing amount of capital employed. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. With that in mind, the ROCE of OEM International (STO:OEM B) looks great, so lets see what the trend can tell us.

Return On Capital Employed (ROCE): What Is It?

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 OEM International is:

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

0.39 = kr778m ÷ (kr2.8b - kr871m) (Based on the trailing twelve months to June 2023).

So, OEM International has an ROCE of 39%. In absolute terms that's a great return and it's even better than the Trade Distributors industry average of 16%.

View our latest analysis for OEM International

While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you're interested in investigating OEM International's past further, check out this free graph of past earnings, revenue and cash flow.

The Trend Of ROCE

OEM International is displaying some positive trends. The data shows that returns on capital have increased substantially over the last five years to 39%. Basically the business is earning more per dollar of capital invested and in addition to that, 109% 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.

In Conclusion...

To sum it up, OEM International has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. And a remarkable 150% total return over the last five years tells us that investors are expecting more good things to come in the future. Therefore, we think it would be worth your time to check if these trends are going to continue.

One more thing, we've spotted 1 warning sign facing OEM International that you might find interesting.

OEM International 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.