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What are the early trends we should look for to identify a stock that could multiply in value over the long term? 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. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. And in light of that, the trends we're seeing at AlzChem Group's (ETR:ACT) look very promising so lets take a look.
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. Analysts use this formula to calculate it for AlzChem Group:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.20 = €75m ÷ (€484m - €105m) (Based on the trailing twelve months to December 2024).
Therefore, AlzChem Group has an ROCE of 20%. In absolute terms that's a great return and it's even better than the Chemicals industry average of 8.4%.
See our latest analysis for AlzChem Group
Above you can see how the current ROCE for AlzChem Group compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like to see what analysts are forecasting going forward, you should check out our free analyst report for AlzChem Group .
So How Is AlzChem Group's ROCE Trending?
AlzChem Group is displaying some positive trends. The data shows that returns on capital have increased substantially over the last five years to 20%. Basically the business is earning more per dollar of capital invested and in addition to that, 34% more capital is being employed now too. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, a combination that's common among multi-baggers.
The Key Takeaway
In summary, it's great to see that AlzChem Group can compound returns by consistently reinvesting capital at increasing rates of return, because these are some of the key ingredients of those highly sought after multi-baggers. And with the stock having performed exceptionally well over the last five years, these patterns are being accounted for by investors. Therefore, we think it would be worth your time to check if these trends are going to continue.
Like most companies, AlzChem Group does come with some risks, and we've found 1 warning sign that you should be aware of.