Why We Like The Returns At Firefly (STO:FIRE)

Did you know there are some financial metrics that can provide clues of a potential 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. 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 Firefly's (STO:FIRE) returns on capital, so let's have 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. Analysts use this formula to calculate it for Firefly:

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

0.36 = kr67m ÷ (kr308m - kr120m) (Based on the trailing twelve months to March 2024).

Thus, Firefly has an ROCE of 36%. In absolute terms that's a great return and it's even better than the Electronic industry average of 17%.

View our latest analysis for Firefly

While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you're interested in investigating Firefly's past further, check out this free graph covering Firefly's past earnings, revenue and cash flow.

What Does the ROCE Trend For Firefly Tell Us?

The trends we've noticed at Firefly are quite reassuring. The data shows that returns on capital have increased substantially over the last five years to 36%. 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 144%. So we're very much inspired by what we're seeing at Firefly thanks to its ability to profitably reinvest capital.

The Key Takeaway

A company that is growing its returns on capital and can consistently reinvest in itself is a highly sought after trait, and that's what Firefly has. And a remarkable 350% total return over the last five years tells us that investors are expecting more good things to come in the future. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.

One more thing: We've identified 2 warning signs with Firefly (at least 1 which shouldn't be ignored) , and understanding these would certainly be useful.

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. 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com