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If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. 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. Speaking of which, we noticed some great changes in Planoptik's (ETR:P4O) returns on capital, so let's have a look.
What Is Return On Capital Employed (ROCE)?
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 Planoptik is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.17 = €2.3m ÷ (€16m - €2.3m) (Based on the trailing twelve months to December 2023).
Thus, Planoptik has an ROCE of 17%. That's a relatively normal return on capital, and it's around the 15% generated by the Semiconductor industry.
See our latest analysis for Planoptik
Historical performance is a great place to start when researching a stock so above you can see the gauge for Planoptik's ROCE against it's prior returns. If you're interested in investigating Planoptik's past further, check out this free graph covering Planoptik's past earnings, revenue and cash flow.
What Does the ROCE Trend For Planoptik Tell Us?
We like the trends that we're seeing from Planoptik. The data shows that returns on capital have increased substantially over the last five years to 17%. The company is effectively making more money per dollar of capital used, and it's worth noting that the amount of capital has increased too, by 54%. 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 Bottom Line On Planoptik's ROCE
To sum it up, Planoptik has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. Since the stock has returned a staggering 111% to shareholders over the last five years, it looks like investors are recognizing these changes. So given the stock has proven it has promising trends, it's worth researching the company further to see if these trends are likely to persist.
If you want to continue researching Planoptik, you might be interested to know about the 2 warning signs that our analysis has discovered.