There are a few key trends to look for if we want to identify the next multi-bagger. Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's amount of capital employed. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. With that in mind, we've noticed some promising trends at ScandBook Holding (STO:SBOK) so let's look a bit deeper.
What Is 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. Analysts use this formula to calculate it for ScandBook Holding:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.12 = kr30m ÷ (kr308m - kr50m) (Based on the trailing twelve months to June 2022).
Thus, ScandBook Holding has an ROCE of 12%. On its own, that's a standard return, however it's much better than the 9.1% generated by the Commercial Services industry.
View our latest analysis for ScandBook Holding
Historical performance is a great place to start when researching a stock so above you can see the gauge for ScandBook Holding's ROCE against it's prior returns. If you want to delve into the historical earnings, revenue and cash flow of ScandBook Holding, check out these free graphs here.
What The Trend Of ROCE Can Tell Us
The trends we've noticed at ScandBook Holding are quite reassuring. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 12%. 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 21%. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.
In Conclusion...
A company that is growing its returns on capital and can consistently reinvest in itself is a highly sought after trait, and that's what ScandBook Holding has. Since the stock has returned a staggering 113% 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.
On a separate note, we've found 2 warning signs for ScandBook Holding you'll probably want to know about.
If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive 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.
About OM:SBOK
ScandBook Holding
Manufactures and sells hard/soft cover books for book publishers in Sweden.
Flawless balance sheet with proven track record and pays a dividend.
