To find multi-bagger stock, what are the underlying trends we need to look for in a business? A common approach is to try to find a business with Return on capital employed (ROCE) which increases, in connection with growth amount capital employed. Basically, it means that a business has profitable initiatives that it can keep reinvesting in, which is a hallmark of a dialing machine. So when we looked through our eyes Netcompany Group (CPH: NETC) ROCE trend, we liked what we saw.
Return on capital employed (ROCE): what is it?
Just to clarify if you’re not sure, ROCE is a measure of the pre-tax income (as a percentage) that a business earns on the capital invested in its business. To calculate this metric for Netcompany Group, here is the formula:
Return on capital employed = Profit before interest and taxes (EBIT) ÷ (Total assets – Current liabilities)
0.20 = kr.713m ÷ (kr.4.1b – kr.473m) (Based on the last twelve months up to March 2021).
So, Netcompany Group has a ROCE of 20%. This is a relatively normal return on capital, and it is around the 17% generated by the software industry.
See our latest analysis for Netcompany Group
Above you can see how Netcompany Group’s current ROCE compares to its previous returns on equity, but there is little you can say about the past. If you wish, you can consult here the forecasts of the analysts of the Netcompany group for free.
How are the returns evolving?
The ROCE trend doesn’t stand out much, but overall returns are okay. The company has steadily gained 20% over the past five years and the capital employed within the company has increased by 312% during this period. Since 20% is moderate ROCE, it’s good to see that a company can keep reinvesting at these decent rates of return. Stable returns in this basic stage can be unattractive, but if they can be sustained over the long term, they often offer nice rewards for shareholders.
The result of the ROCE of the Netcompany group
To sum up, Netcompany Group has simply reinvested capital regularly, at these decent rates of return. On top of that, the stock rewarded shareholders with a remarkable 240% return for those who have held it over the past three years. So while the positive underlying trends can be explained by investors, we still believe this stock is worth looking into.
Netcompany Group might be trading attractively in other respects, so you might find our free estimate of intrinsic value on our platform quite valuable.
For those who like to invest in solid companies, Check it out free list of companies with strong balance sheets and high returns on equity.
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