Under The Bonnet, OEM International's (STO:OEM B) Returns Look Impressive

To find a multi-bagger stock, what are the underlying trends we should look for in a business? Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing 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. And in light of that, the trends we're seeing at OEM International's (STO:OEM B) look very promising so lets take a look.

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. 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 = kr693m ÷ (kr2.8b - kr1.0b) (Based on the trailing twelve months to December 2022).

Therefore, OEM International has an ROCE of 39%. That's a fantastic return and not only that, it outpaces the average of 15% earned by companies in a similar industry.

See our latest analysis for OEM International

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

What Can We Tell From OEM International's ROCE Trend?

We like the trends that we're seeing from OEM International. The data shows that returns on capital have increased substantially over the last five years to 39%. 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 98%. 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 Bottom Line On OEM International's ROCE

All in all, it's terrific to see that OEM International is reaping the rewards from prior investments and is growing its capital base. Since the stock has returned a staggering 259% to shareholders over the last five years, it looks like investors are recognizing these changes. Therefore, we think it would be worth your time to check if these trends are going to continue.

Before jumping to any conclusions though, we need to know what value we're getting for the current share price. That's where you can check out our FREE intrinsic value estimation that compares the share price and estimated value.

If you want to search for more stocks that have been earning high returns, check out this free list of stocks with solid balance sheets that are also earning high returns on equity.

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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.