What Can The Trends At Mediacle Group (NGM:MEGR) Tell Us About Their Returns?

What are the early trends we should look for to identify a stock that could multiply in value over the long term? 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. With that in mind, we've noticed some promising trends at Mediacle Group (NGM:MEGR) so let's look a bit deeper.

Return On Capital Employed (ROCE): What is it?

For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. The formula for this calculation on Mediacle Group is:

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

0.039 = kr3.5m ÷ (kr118m - kr29m) (Based on the trailing twelve months to September 2020).

Thus, Mediacle Group has an ROCE of 3.9%. In absolute terms, that's a low return and it also under-performs the Online Retail industry average of 13%.

Check out our latest analysis for Mediacle Group

Historical performance is a great place to start when researching a stock so above you can see the gauge for Mediacle Group's ROCE against it's prior returns. If you're interested in investigating Mediacle Group's past further, check out this free graph of past earnings, revenue and cash flow.

What Can We Tell From Mediacle Group's ROCE Trend?

We're delighted to see that Mediacle Group is reaping rewards from its investments and is now generating some pre-tax profits. Shareholders would no doubt be pleased with this because the business was loss-making five years ago but is is now generating 3.9% on its capital. In addition to that, Mediacle Group is employing 7,845% more capital than previously which is expected of a company that's trying to break into profitability. We like this trend, because it tells us the company has profitable reinvestment opportunities available to it, and if it continues going forward that can lead to a multi-bagger performance.

In Conclusion...

In summary, it's great to see that Mediacle Group has managed to break into profitability and is continuing to reinvest in its business. And investors seem to expect more of this going forward, since the stock has rewarded shareholders with a 67% return over the last three years. Therefore, we think it would be worth your time to check if these trends are going to continue.

One final note, you should learn about the 3 warning signs we've spotted with Mediacle Group (including 1 which is significant) .

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high returns on equity.

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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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