The Trend Of High Returns At Precio Fishbone (STO:PRCO B) 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. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. Speaking of which, we noticed some great changes in Precio Fishbone's (STO:PRCO B) returns on capital, so let's have a look.

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. The formula for this calculation on Precio Fishbone is:

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

0.21 = kr26m ÷ (kr189m - kr61m) (Based on the trailing twelve months to September 2020).

Thus, Precio Fishbone has an ROCE of 21%. In absolute terms that's a very respectable return and compared to the IT industry average of 18% it's pretty much on par.

View our latest analysis for Precio Fishbone

Historical performance is a great place to start when researching a stock so above you can see the gauge for Precio Fishbone's ROCE against it's prior returns. If you want to delve into the historical earnings, revenue and cash flow of Precio Fishbone, check out these free graphs here.

What The Trend Of ROCE Can Tell Us

We like the trends that we're seeing from Precio Fishbone. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 21%. The amount of capital employed has increased too, by 33%. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, a combination that's common among multi-baggers.

The Bottom Line

All in all, it's terrific to see that Precio Fishbone is reaping the rewards from prior investments and is growing its capital base. And with the stock having performed exceptionally well over the last five years, these patterns are being accounted for by investors. Therefore, we think it would be worth your time to check if these trends are going to continue.

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

If you want to search for more stocks that have been earning high returns, check out this free list of stocks with solid balance sheets that are also earning 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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