Troax Group (STO:TROAX) Has More To Do To Multiply In Value Going Forward

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. 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.

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. Analysts use this formula to calculate it for Troax Group:

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

0.18 = €46m ÷ (€312m - €52m) (Based on the trailing twelve months to June 2024).

Thus, Troax Group has an ROCE of 18%. On its own, that's a standard return, however it's much better than the 14% generated by the Machinery industry.

Check out 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 to see what analysts are forecasting going forward, you should check out our free analyst report for Troax Group .

How Are Returns Trending?

While the returns on capital are good, they haven't moved much. The company has consistently earned 18% for the last five years, and the capital employed within the business has risen 57% in that time. Since 18% is a moderate ROCE though, it's good to see a business can continue to reinvest at these decent rates of return. 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.

In Conclusion...

In the end, Troax Group has proven its ability to adequately reinvest capital at good rates of return. And the stock has done incredibly well with a 103% return over the last five years, so long term investors are no doubt ecstatic with that result. So while the positive underlying trends may be accounted for by investors, we still think this stock is worth looking into further.

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

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.