To find multi-bagger stock, what are the underlying trends we need to look for in a business? Among other things, we’ll want to see two things; first, a growth to recover on capital employed (ROCE) and on the other hand, an expansion of the amount capital employed. If you see this, it usually means it’s a company with a great business model and plenty of profitable reinvestment opportunities. With this in mind, the ROCE of Mensch und Maschine software (ETR: MUM) looks great, so let’s see what the trend can tell us.
What is Return on Employee Capital (ROCE)?
If you’ve never worked with ROCE before, it measures the “return” (profit before tax) that a business generates on capital employed in its business. Analysts use this formula to calculate it for Mensch und Maschine Software:
Return on capital employed = Profit before interest and taxes (EBIT) ÷ (Total assets – Current liabilities)
0.28 = € 31m ÷ (€ 161m – € 49m) (Based on the last twelve months up to June 2021).
So, Mensch und Maschine Software has a ROCE of 28%. This is a fantastic return and not only that, it exceeds the 12% average earned by companies in a similar industry.
Check out our latest review for Mensch und Maschine Software
Above you can see how Mensch und Maschine Software’s current ROCE compares to its previous returns on capital, but there is little you can say about the past. If you are interested, you can view analyst forecasts in our free analyst forecast report for the company.
What does the ROCE trend tell us for Mensch und Maschine Software?
The trends we have observed at Mensch und Maschine Software are rather reassuring. Data shows that returns on capital have increased dramatically over the past five years to reach 28%. Basically the business earns more per dollar of capital invested and on top of that 60% more capital is also being used now. This may indicate that there are many opportunities to invest capital internally and at increasingly higher rates, a common combination among multi-baggers.
The key to take away
In summary, it is great to see that Mensch und Maschine Software can increase returns by systematically reinvesting capital at increasing rates of return, as these are some of the key ingredients in these highly sought after multi-baggers. And a remarkable 470% total return over the past five years tells us that investors expect more good things to come in the future. So, given that the stock has proven to have some promising trends, it’s worth doing more research on the company to see if these trends are likely to continue.
While Mensch und Maschine Software sounds awesome, no business is worth an infinite price. The intrinsic value infographic in our free The research report helps to see if MUM is currently trading at a fair price.
If you want to look for other stocks that have generated high returns, check out this free list of stocks with strong balance sheets that also generate high returns on equity.
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