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There are a few key trends to look for if we want to identify the next multi-bagger. In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. 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 Nynomic (ETR:M7U), it didn't seem to tick all of these boxes.
Return On Capital Employed (ROCE): What Is It?
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 Nynomic is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.12 = €15m ÷ (€146m - €23m) (Based on the trailing twelve months to June 2024).
Therefore, Nynomic has an ROCE of 12%. That's a relatively normal return on capital, and it's around the 11% generated by the Electronic industry.
See our latest analysis for Nynomic
In the above chart we have measured Nynomic's prior ROCE against its prior performance, but the future is arguably more important. If you'd like to see what analysts are forecasting going forward, you should check out our free analyst report for Nynomic .
So How Is Nynomic's ROCE Trending?
In terms of Nynomic's historical ROCE movements, the trend isn't fantastic. Around five years ago the returns on capital were 16%, but since then they've fallen to 12%. On the other hand, the company has been employing more capital without a corresponding improvement in sales in the last year, which could suggest these investments are longer term plays. It may take some time before the company starts to see any change in earnings from these investments.
What We Can Learn From Nynomic's ROCE
Bringing it all together, while we're somewhat encouraged by Nynomic's reinvestment in its own business, we're aware that returns are shrinking. Unsurprisingly, the stock has only gained 4.6% over the last five years, which potentially indicates that investors are accounting for this going forward. So if you're looking for a multi-bagger, the underlying trends indicate you may have better chances elsewhere.
While Nynomic doesn't shine too bright in this respect, it's still worth seeing if the company is trading at attractive prices. You can find that out with our FREE intrinsic value estimation for M7U on our platform.