Here's What To Make Of Troax Group's (STO:TROAX) Decelerating Rates Of Return

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base 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. That's why when we briefly looked at Troax Group's (STO:TROAX) ROCE trend, we were pretty happy with what we saw.

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

For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. Analysts use this formula to calculate it for Troax Group:

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

0.15 = €43m ÷ (€339m - €47m) (Based on the trailing twelve months to March 2025).

So, Troax Group has an ROCE of 15%. That's a pretty standard return and it's in line with the industry average of 15%.

View our latest analysis for Troax Group

Above you can see how the current ROCE for Troax Group compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like, you can check out the forecasts from the analysts covering Troax Group for free.

What Does the ROCE Trend For Troax Group Tell Us?

While the current returns on capital are decent, they haven't changed much. The company has employed 58% more capital in the last five years, and the returns on that capital have remained stable at 15%. 15% is a pretty standard return, and it provides some comfort knowing that Troax Group has consistently earned this amount. Stable returns in this ballpark can be unexciting, but if they can be maintained over the long run, they often provide nice rewards to shareholders.

The Bottom Line

To sum it up, Troax Group has simply been reinvesting capital steadily, at those decent rates of return. In light of this, the stock has only gained 19% over the last five years for shareholders who have owned the stock in this period. So to determine if Troax Group is a multi-bagger going forward, we'd suggest digging deeper into the company's other fundamentals.

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

While Troax 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.