XANO Industri (STO:XANO B) Has Some Way To Go To Become A Multi-Bagger

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. 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. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. So, when we ran our eye over XANO Industri's (STO:XANO B) trend of ROCE, we liked what we saw.

Understanding Return On Capital Employed (ROCE)

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. To calculate this metric for XANO Industri, this is the formula:

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

0.17 = kr327m ÷ (kr2.6b - kr659m) (Based on the trailing twelve months to March 2021).

So, XANO Industri has an ROCE of 17%. That's a relatively normal return on capital, and it's around the 14% generated by the Machinery industry.

See our latest analysis for XANO Industri

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

So How Is XANO Industri's ROCE Trending?

While the current returns on capital are decent, they haven't changed much. The company has consistently earned 17% for the last five years, and the capital employed within the business has risen 220% in that time. Since 17% 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.

One more thing to note, even though ROCE has remained relatively flat over the last five years, the reduction in current liabilities to 25% of total assets, is good to see from a business owner's perspective. Effectively suppliers now fund less of the business, which can lower some elements of risk.

The Bottom Line On XANO Industri's ROCE

To sum it up, XANO Industri has simply been reinvesting capital steadily, at those decent rates of return. And long term investors would be thrilled with the 351% return they've received over the last five years. So while investors seem to be recognizing these promising trends, we still believe the stock deserves further research.

On a separate note, we've found 3 warning signs for XANO Industri you'll probably want to know about.

While XANO Industri 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. 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.
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