Sapiens International (NASDAQ:SPNS) Might Have The Makings Of A Multi-Bagger

Published
June 09, 2022
NasdaqGS:SPNS
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If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? 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. With that in mind, we've noticed some promising trends at Sapiens International (NASDAQ:SPNS) so let's look a bit deeper.

Understanding Return On Capital Employed (ROCE)

For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. The formula for this calculation on Sapiens International is:

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

0.11 = US$62m ÷ (US$708m - US$158m) (Based on the trailing twelve months to March 2022).

Therefore, Sapiens International has an ROCE of 11%. On its own, that's a standard return, however it's much better than the 9.3% generated by the Software industry.

See our latest analysis for Sapiens International

roce
NasdaqGS:SPNS Return on Capital Employed June 9th 2022

Above you can see how the current ROCE for Sapiens International 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 report on analyst forecasts for the company.

The Trend Of ROCE

Sapiens International is displaying some positive trends. The data shows that returns on capital have increased substantially over the last five years to 11%. 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 109%. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.

In Conclusion...

In summary, it's great to see that Sapiens International 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 a remarkable 112% total return over the last five years tells us that investors are expecting more good things to come in the future. Therefore, we think it would be worth your time to check if these trends are going to continue.

If you want to continue researching Sapiens International, you might be interested to know about the 1 warning sign that our analysis has discovered.

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high returns on equity.

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About NasdaqGS:SPNS

Sapiens International

Sapiens International Corporation N.V. provides software solutions for the insurance and financial services industries in North America, the European Union, the United Kingdom, Israel, and internationally.

Excellent balance sheet with proven track record.