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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? Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. Although, when we looked at DATA MODUL Produktion und Vertrieb von elektronischen Systemen (ETR:DAM), it didn't seem to tick all of these boxes.
What Is Return On Capital Employed (ROCE)?
For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. Analysts use this formula to calculate it for DATA MODUL Produktion und Vertrieb von elektronischen Systemen:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.073 = €13m ÷ (€207m - €34m) (Based on the trailing twelve months to September 2024).
Therefore, DATA MODUL Produktion und Vertrieb von elektronischen Systemen has an ROCE of 7.3%. In absolute terms, that's a low return and it also under-performs the Electronic industry average of 9.2%.
See our latest analysis for DATA MODUL Produktion und Vertrieb von elektronischen Systemen
Above you can see how the current ROCE for DATA MODUL Produktion und Vertrieb von elektronischen Systemen 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 analyst report for DATA MODUL Produktion und Vertrieb von elektronischen Systemen .
The Trend Of ROCE
On the surface, the trend of ROCE at DATA MODUL Produktion und Vertrieb von elektronischen Systemen doesn't inspire confidence. Over the last five years, returns on capital have decreased to 7.3% from 12% five years ago. Given the business is employing more capital while revenue has slipped, this is a bit concerning. If this were to continue, you might be looking at a company that is trying to reinvest for growth but is actually losing market share since sales haven't increased.
What We Can Learn From DATA MODUL Produktion und Vertrieb von elektronischen Systemen's ROCE
In summary, we're somewhat concerned by DATA MODUL Produktion und Vertrieb von elektronischen Systemen's diminishing returns on increasing amounts of capital. Investors haven't taken kindly to these developments, since the stock has declined 41% from where it was five years ago. Unless there is a shift to a more positive trajectory in these metrics, we would look elsewhere.