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If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. With that in mind, we've noticed some promising trends at Scout24 (ETR:G24) so let's look a bit deeper.
What Is Return On Capital Employed (ROCE)?
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 Scout24:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.17 = €301m ÷ (€2.0b - €236m) (Based on the trailing twelve months to December 2024).
So, Scout24 has an ROCE of 17%. In isolation, that's a pretty standard return but against the Interactive Media and Services industry average of 28%, it's not as good.
See our latest analysis for Scout24
Above you can see how the current ROCE for Scout24 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 Scout24 .
What The Trend Of ROCE Can Tell Us
We're pretty happy with how the ROCE has been trending at Scout24. The figures show that over the last five years, returns on capital have grown by 264%. The company is now earning €0.2 per dollar of capital employed. Speaking of capital employed, the company is actually utilizing 25% less than it was five years ago, which can be indicative of a business that's improving its efficiency. A business that's shrinking its asset base like this isn't usually typical of a soon to be multi-bagger company.
Our Take On Scout24's ROCE
In a nutshell, we're pleased to see that Scout24 has been able to generate higher returns from less capital. And investors seem to expect more of this going forward, since the stock has rewarded shareholders with a 75% return over the last five years. 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.
Before jumping to any conclusions though, we need to know what value we're getting for the current share price. That's where you can check out our FREE intrinsic value estimation for G24 that compares the share price and estimated value.