In This Article:
There are a few key trends to look for if we want to identify the next multi-bagger. Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. However, after briefly looking over the numbers, we don't think Nabaltec (ETR:NTG) has the makings of a multi-bagger going forward, but let's have a look at why that may be.
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 Nabaltec is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.083 = €23m ÷ (€297m - €24m) (Based on the trailing twelve months to September 2024).
Thus, Nabaltec has an ROCE of 8.3%. Even though it's in line with the industry average of 8.4%, it's still a low return by itself.
See our latest analysis for Nabaltec
In the above chart we have measured Nabaltec'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 Nabaltec .
How Are Returns Trending?
The returns on capital haven't changed much for Nabaltec in recent years. The company has employed 48% more capital in the last five years, and the returns on that capital have remained stable at 8.3%. This poor ROCE doesn't inspire confidence right now, and with the increase in capital employed, it's evident that the business isn't deploying the funds into high return investments.
One more thing to note, even though ROCE has remained relatively flat over the last five years, the reduction in current liabilities to 8.1% of total assets, is good to see from a business owner's perspective. Effectively suppliers now fund less of the business, which can lower some elements of risk.
The Bottom Line On Nabaltec's ROCE
In conclusion, Nabaltec has been investing more capital into the business, but returns on that capital haven't increased. Since the stock has declined 24% over the last five years, investors may not be too optimistic on this trend improving either. All in all, the inherent trends aren't typical of multi-baggers, so if that's what you're after, we think you might have more luck elsewhere.