To find multi-bagger stock, what are the underlying trends we need to look for in a business? A common approach is to try to find a business with Return on capital employed (ROCE) which increases, in connection with growth amount capital employed. Ultimately, this demonstrates that this is a company that is reinvesting its profits at increasing rates of return. However, after investigation Atvexa (STO: ATVEXA B), we don’t think the current trends fit the mold of a multi-bagger.
Understanding Return on Capital Employed (ROCE)
If you’ve never worked with ROCE before, it measures the “return” (profit before tax) that a business generates on capital employed in its business. To calculate this metric for Atvexa, here is the formula:
Return on capital employed = Profit before interest and taxes (EBIT) ÷ (Total assets – Current liabilities)
0.10 = kr142m ÷ (kr2.0b – kr580m) (Based on the last twelve months up to February 2021).
Therefore, Atvexa has a ROCE of 10%. This is a relatively normal return on capital, and it sits around the 12% generated by the consumer services industry.
Check out our latest review for Atvexa
Above you can see how Atvexa’s current ROCE compares to its previous returns on capital, but there is little you can say about the past. If you want to see what analysts are forecasting for the future, you should check out our free report for Atvexa.
What does the ROCE trend tell us for Atvexa?
In terms of Atvexa’s historic ROCE movements, the trend is not great. To be more precise, ROCE has increased from 21% over the past five years. Although, as income and the amount of assets used in the business have increased, this could suggest that the business is investing in growth and that the additional capital has resulted in a short-term reduction in ROCE. If these investments prove to be successful, it can bode well for long-term stock performance.
Our opinion on Atvexa’s ROCE
As returns have plummeted for Atvexa lately, we are encouraged to see sales increasing and the company reinvesting in its operations. And the stock followed suit, earning 87% to shareholders over the past three years. So, while investors seem to recognize these promising trends, we’re taking a more in-depth look at this stock to make sure the other metrics justify the positive opinion.
If you want to know the risks facing Atvexa, we have discovered 1 warning sign that you need to be aware of.
While Atvexa does not currently generate the highest returns, we have compiled a list of companies that currently generate over 25% return on equity. Check it out free list here.
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This Simply Wall St article is general in nature. It does not constitute a recommendation to buy or sell shares and does not take into account your goals or your financial situation. Our aim is to bring you long-term, targeted analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price sensitive companies or qualitative documents. Simply Wall St has no position in the mentioned stocks.
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