If you’re not sure where to start when looking for the next multi-bagger, there are a few key trends you should watch out for. A common approach is to try to find a company with Return on capital employed (ROCE) which is increasing, in line with growth amount capital employed. Simply put, these types of businesses are slot machines, meaning they continually reinvest their profits at ever-higher rates of return. With this in mind, the ROCE of Aperam (ADM:APAM) looks great, so let’s see what the trend can tell us.
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. The formula for this calculation on Aperam is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets – Current Liabilities)
0.26 = €1.2B ÷ (€6.9B – €2.4B) (Based on the last twelve months to June 2022).
So, Aperam posts a ROCE of 26%. This is a fantastic return and not only that, it exceeds the 15% average earned by companies in a similar industry.
See our latest analysis for Aperam
Above you can see how Aperam’s current ROCE compares to its past returns on capital, but there is little you can say about the past. If you wish, you can consult the forecasts of analysts covering Aperam here for free.
What the ROCE trend can tell us
The trends we’ve noticed at Aperam are quite reassuring. Over the past five years, return on capital employed has increased substantially to 26%. The amount of capital employed also increased by 50%. This may indicate that there are many opportunities to invest capital internally and at ever-increasing rates, a common combination among multi-baggers.
The essential
Overall, it’s great to see that Aperam is reaping the rewards of past investments and growing its capital base. Astute investors may have an opportunity here as the stock is down 19% over the past five years. That said, research into the company’s current valuation metrics and future prospects seems appropriate.
Finally we found 3 warning signs for Aperam (2 cannot be skipped) you should be aware.
If you want to see other businesses earning high returns, check out our free list of companies earning high returns with strong balance sheets here.
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This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts only using unbiased methodology and our articles are not intended to be financial advice. It is not a recommendation to buy or sell stocks and does not take into account your objectives or financial situation. Our goal is to bring you targeted long-term analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price-sensitive companies or qualitative materials. Simply Wall St has no position in the stocks mentioned.
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