If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out for. Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. With that in mind, the ROCE of CEWE Stiftung KGaA (ETR:CWC) looks decent, right now, so lets see what the trend of returns can tell us.
What Is Return On Capital Employed (ROCE)?
For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. The formula for this calculation on CEWE Stiftung KGaA is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.18 = €80m ÷ (€545m - €106m) (Based on the trailing twelve months to March 2023).
Therefore, CEWE Stiftung KGaA has an ROCE of 18%. In absolute terms, that's a satisfactory return, but compared to the Commercial Services industry average of 7.6% it's much better.
Check out our latest analysis for CEWE Stiftung KGaA
In the above chart we have measured CEWE Stiftung KGaA'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 report for CEWE Stiftung KGaA.
So How Is CEWE Stiftung KGaA's ROCE Trending?
While the current returns on capital are decent, they haven't changed much. Over the past five years, ROCE has remained relatively flat at around 18% and the business has deployed 67% more capital into its operations. 18% is a pretty standard return, and it provides some comfort knowing that CEWE Stiftung KGaA has consistently earned this amount. Over long periods of time, returns like these might not be too exciting, but with consistency they can pay off in terms of share price returns.
On a side note, CEWE Stiftung KGaA has done well to reduce current liabilities to 19% of total assets over the last five years. Effectively suppliers now fund less of the business, which can lower some elements of risk.
The Bottom Line
In the end, CEWE Stiftung KGaA has proven its ability to adequately reinvest capital at good rates of return. And given the stock has only risen 29% over the last five years, we'd suspect the market is beginning to recognize these trends. That's why it could be worth your time looking into this stock further to discover if it has more traits of a multi-bagger.