Stock Analysis

Why The 26% Return On Capital At Clas Ohlson (STO:CLAS B) Should Have Your Attention

OM:CLAS B
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To find a multi-bagger stock, what are the underlying trends we should look for in a business? 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. So when we looked at the ROCE trend of Clas Ohlson (STO:CLAS B) we really liked what we saw.

What Is Return On Capital Employed (ROCE)?

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. Analysts use this formula to calculate it for Clas Ohlson:

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

0.26 = kr855m ÷ (kr6.0b - kr2.7b) (Based on the trailing twelve months to January 2024).

Thus, Clas Ohlson has an ROCE of 26%. That's a fantastic return and not only that, it outpaces the average of 9.7% earned by companies in a similar industry.

See our latest analysis for Clas Ohlson

roce
OM:CLAS B Return on Capital Employed May 10th 2024

Above you can see how the current ROCE for Clas Ohlson 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 Clas Ohlson .

The Trend Of ROCE

We like the trends that we're seeing from Clas Ohlson. Over the last five years, returns on capital employed have risen substantially to 26%. 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 49%. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.

On a separate but related note, it's important to know that Clas Ohlson has a current liabilities to total assets ratio of 46%, which we'd consider pretty high. This can bring about some risks because the company is basically operating with a rather large reliance on its suppliers or other sorts of short-term creditors. Ideally we'd like to see this reduce as that would mean fewer obligations bearing risks.

The Bottom Line On Clas Ohlson's ROCE

In summary, it's great to see that Clas Ohlson can compound returns by consistently reinvesting capital at increasing rates of return, because these are some of the key ingredients of those highly sought after multi-baggers. And with the stock having performed exceptionally well over the last five years, these patterns are being accounted for by investors. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.

One more thing, we've spotted 1 warning sign facing Clas Ohlson that you might find interesting.

High returns are a key ingredient to strong performance, so check out our free list ofstocks earning high returns on equity with solid balance sheets.

Valuation is complex, but we're helping make it simple.

Find out whether Clas Ohlson is potentially over or undervalued by checking out our comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, insider transactions and financial health.

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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.