These Trends Paint A Bright Future For Intelligent Systems (NYSEMKT:INS)

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. So when we looked at the ROCE trend of Intelligent Systems (NYSEMKT:INS) we really liked what we saw.

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. Analysts use this formula to calculate it for Intelligent Systems:

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

0.24 = US$11m ÷ (US$57m - US$10m) (Based on the trailing twelve months to December 2020).

Thus, Intelligent Systems has an ROCE of 24%. That's a fantastic return and not only that, it outpaces the average of 11% earned by companies in a similar industry.

Check out our latest analysis for Intelligent Systems

In the above chart we have measured Intelligent Systems' prior ROCE against its prior performance, but the future is arguably more important. If you'd like to see what analysts are forecasting going forward, you should check out our free report for Intelligent Systems.

So How Is Intelligent Systems' ROCE Trending?

The fact that Intelligent Systems is now generating some pre-tax profits from its prior investments is very encouraging. Shareholders would no doubt be pleased with this because the business was loss-making five years ago but is is now generating 24% on its capital. Not only that, but the company is utilizing 102% more capital than before, but that's to be expected from a company trying to break into profitability. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, both common traits of a multi-bagger.

The Bottom Line

Long story short, we're delighted to see that Intelligent Systems' reinvestment activities have paid off and the company is now profitable. Since the stock has returned a staggering 1,250% to shareholders over the last five years, it looks like investors are recognizing these changes. In light of that, we think it's worth looking further into this stock because if Intelligent Systems can keep these trends up, it could have a bright future ahead.

On a final note, we've found 1 warning sign for Intelligent Systems that we think you should be aware of.

If you'd like to see other companies earning high returns, check out our free list of companies earning high returns with solid balance sheets here.

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