The Trend Of High Returns At RVRC Holding (STO:RVRC) Has Us Very Interested

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. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. And in light of that, the trends we're seeing at RVRC Holding's (STO:RVRC) look very promising so lets take a look.

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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 RVRC Holding:

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

0.32 = kr389m ÷ (kr1.8b - kr544m) (Based on the trailing twelve months to December 2024).

So, RVRC Holding has an ROCE of 32%. That's a fantastic return and not only that, it outpaces the average of 9.2% earned by companies in a similar industry.

Check out our latest analysis for RVRC Holding

In the above chart we have measured RVRC Holding's prior ROCE against its prior performance, but the future is arguably more important. If you're interested, you can view the analysts predictions in our free analyst report for RVRC Holding .

What Does the ROCE Trend For RVRC Holding Tell Us?

We like the trends that we're seeing from RVRC Holding. The data shows that returns on capital have increased substantially over the last five years to 32%. 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 37%. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.

For the record though, there was a noticeable increase in the company's current liabilities over the period, so we would attribute some of the ROCE growth to that. Effectively this means that suppliers or short-term creditors are now funding 31% of the business, which is more than it was five years ago. Keep an eye out for future increases because when the ratio of current liabilities to total assets gets particularly high, this can introduce some new risks for the business.

Our Take On RVRC Holding's ROCE

In summary, it's great to see that RVRC Holding 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 since the stock has fallen 33% over the last three years, there might be an opportunity here. With that in mind, we believe the promising trends warrant this stock for further investigation.

On the other side of ROCE, we have to consider valuation. That's why we have a FREE intrinsic value estimation for RVRC on our platform that is definitely worth checking out.

RVRC Holding is not the only stock earning high returns. If you'd like to see more, check out our free list of companies earning high returns on equity with solid fundamentals.

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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.