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If you're looking for a multi-bagger, there's a few things to keep an eye out 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. With that in mind, we've noticed some promising trends at GFT Technologies (ETR:GFT) so let's look a bit deeper.
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. The formula for this calculation on GFT Technologies is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.18 = €72m ÷ (€653m - €259m) (Based on the trailing twelve months to December 2024).
Thus, GFT Technologies has an ROCE of 18%. In absolute terms, that's a satisfactory return, but compared to the IT industry average of 12% it's much better.
Check out our latest analysis for GFT Technologies
Above you can see how the current ROCE for GFT Technologies 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 GFT Technologies .
What Does the ROCE Trend For GFT Technologies Tell Us?
Investors would be pleased with what's happening at GFT Technologies. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 18%. Basically the business is earning more per dollar of capital invested and in addition to that, 35% more capital is being employed now too. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.
The Key Takeaway
A company that is growing its returns on capital and can consistently reinvest in itself is a highly sought after trait, and that's what GFT Technologies has. Since the stock has returned a staggering 180% to shareholders over the last five years, it looks like investors are recognizing these changes. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.
GFT Technologies does have some risks though, and we've spotted 1 warning sign for GFT Technologies that you might be interested in.