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To find a multi-bagger stock, what are the underlying trends we should look for in a business? In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. So when we looked at the ROCE trend of Andrews Sykes Group (LON:ASY) we really liked what we saw.
Understanding Return On Capital Employed (ROCE)
Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. Analysts use this formula to calculate it for Andrews Sykes Group:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.41 = UK£23m ÷ (UK£78m - UK£21m) (Based on the trailing twelve months to December 2023).
So, Andrews Sykes Group has an ROCE of 41%. That's a fantastic return and not only that, it outpaces the average of 14% earned by companies in a similar industry.
Check out our latest analysis for Andrews Sykes Group
While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you want to delve into the historical earnings , check out these free graphs detailing revenue and cash flow performance of Andrews Sykes Group.
How Are Returns Trending?
Andrews Sykes Group is showing promise given that its ROCE is trending up and to the right. More specifically, while the company has kept capital employed relatively flat over the last five years, the ROCE has climbed 25% in that same time. So our take on this is that the business has increased efficiencies to generate these higher returns, all the while not needing to make any additional investments. On that front, things are looking good so it's worth exploring what management has said about growth plans going forward.
The Key Takeaway
To sum it up, Andrews Sykes Group is collecting higher returns from the same amount of capital, and that's impressive. Considering the stock has delivered 35% to its stockholders over the last five years, it may be fair to think that investors aren't fully aware of the promising trends yet. So with that in mind, we think the stock deserves further research.
If you'd like to know about the risks facing Andrews Sykes Group, we've discovered 1 warning sign that you should be aware of.