We Think AAK AB (publ.) (STO:AAK) Might Have The DNA Of A Multi-Bagger

There are a few key trends to look for if we want to identify the next multi-bagger. Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, 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. And in light of that, the trends we're seeing at AAK AB (publ.)'s (STO:AAK) look very promising so lets take a look.

What Is Return On Capital Employed (ROCE)?

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. The formula for this calculation on AAK AB (publ.) is:

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

0.22 = kr4.7b ÷ (kr32b - kr11b) (Based on the trailing twelve months to June 2024).

Thus, AAK AB (publ.) has an ROCE of 22%. That's a fantastic return and not only that, it outpaces the average of 9.4% earned by companies in a similar industry.

See our latest analysis for AAK AB (publ.)

Above you can see how the current ROCE for AAK AB (publ.) compares to its prior returns on capital, but there's only so much you can tell from the past. If you're interested, you can view the analysts predictions in our free analyst report for AAK AB (publ.) .

The Trend Of ROCE

The trends we've noticed at AAK AB (publ.) are quite reassuring. Over the last five years, returns on capital employed have risen substantially to 22%. Basically the business is earning more per dollar of capital invested and in addition to that, 45% more capital is being employed now too. So we're very much inspired by what we're seeing at AAK AB (publ.) thanks to its ability to profitably reinvest capital.

The Key Takeaway

To sum it up, AAK AB (publ.) has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. And with a respectable 92% awarded to those who held the stock over the last five years, you could argue that these developments are starting to get the attention they deserve. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.

While AAK AB (publ.) looks impressive, no company is worth an infinite price. The intrinsic value infographic for AAK helps visualize whether it is currently trading for a fair price.

If you'd like to see other companies earning high returns, check out our free list of companies earning high returns with solid balance sheets here.

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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.