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If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's amount of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. So on that note, Accsys Technologies (LON:AXS) looks quite promising in regards to its trends of return on capital.
Return On Capital Employed (ROCE): What Is It?
If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. The formula for this calculation on Accsys Technologies is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.031 = €4.8m ÷ (€188m - €34m) (Based on the trailing twelve months to September 2024).
Thus, Accsys Technologies has an ROCE of 3.1%. In absolute terms, that's a low return and it also under-performs the Forestry industry average of 6.8%.
View our latest analysis for Accsys Technologies
Above you can see how the current ROCE for Accsys 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 Accsys Technologies .
How Are Returns Trending?
Accsys Technologies has recently broken into profitability so their prior investments seem to be paying off. The company was generating losses five years ago, but now it's earning 3.1% which is a sight for sore eyes. In addition to that, Accsys Technologies is employing 21% more capital than previously which is expected of a company that's trying to break into profitability. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, both common traits of a multi-bagger.
The Bottom Line
In summary, it's great to see that Accsys Technologies has managed to break into profitability and is continuing to reinvest in its business. Given the stock has declined 51% in the last five years, this could be a good investment if the valuation and other metrics are also appealing. So researching this company further and determining whether or not these trends will continue seems justified.
On the other side of ROCE, we have to consider valuation. That's why we have a FREE intrinsic value estimation for AXS on our platform that is definitely worth checking out.