Capital Allocation Trends At Gigasun (STO:GIGA) Aren't Ideal

There are a few key trends to look for if we want to identify the next multi-bagger. 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. In light of that, when we looked at Gigasun (STO:GIGA) and its ROCE trend, we weren't exactly thrilled.

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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 Gigasun:

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

0.044 = kr64m ÷ (kr2.2b - kr786m) (Based on the trailing twelve months to June 2025).

Thus, Gigasun has an ROCE of 4.4%. In absolute terms, that's a low return and it also under-performs the Renewable Energy industry average of 7.9%.

Check out our latest analysis for Gigasun

In the above chart we have measured Gigasun's prior ROCE against its prior performance, but the future is arguably more important. If you'd like, you can check out the forecasts from the analysts covering Gigasun for free.

What The Trend Of ROCE Can Tell Us

In terms of Gigasun's historical ROCE movements, the trend isn't fantastic. Over the last five years, returns on capital have decreased to 4.4% from 8.9% five years ago. Although, given both revenue and the amount of assets employed in the business have increased, it could suggest the company is investing in growth, and the extra capital has led to a short-term reduction in ROCE. And if the increased capital generates additional returns, the business, and thus shareholders, will benefit in the long run.

On a side note, Gigasun's current liabilities have increased over the last five years to 35% of total assets, effectively distorting the ROCE to some degree. Without this increase, it's likely that ROCE would be even lower than 4.4%. While the ratio isn't currently too high, it's worth keeping an eye on this because if it gets particularly high, the business could then face some new elements of risk.

What We Can Learn From Gigasun's ROCE

In summary, despite lower returns in the short term, we're encouraged to see that Gigasun is reinvesting for growth and has higher sales as a result. Despite these promising trends, the stock has collapsed 81% over the last three years, so there could be other factors hurting the company's prospects. Therefore, we'd suggest researching the stock further to uncover more about the business.

If you'd like to know more about Gigasun, we've spotted 3 warning signs, and 1 of them is concerning.

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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.