There are a few key trends to look out for if we want to identify the next multi-bagger. Among other things, we will want to see two things; first, growth to return to on capital employed (ROCE) and on the other hand, an expansion of the amount capital employed. Ultimately, this demonstrates that this is a company that reinvests its earnings at increasing rates of return. With this in mind, the ROCE of Agroton (WSE:AGT) looks attractive right now, so let’s see what the yield trend can tell us.
Return on capital employed (ROCE): what is it?
For those who don’t know what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital used in its business. Analysts use this formula to calculate it for Agroton:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets – Current Liabilities)
0.22 = $25 million ÷ ($122 million – $9.3 million) (Based on the last twelve months to June 2021).
Thereby, Agroton has a ROCE of 22%. That’s a fantastic return and not only that, it tops the 8.8% average earned by companies in a similar industry.
See our latest analysis for Agroton
Historical performance is a great starting point when researching a stock. So you can see above the gauge of Agroton’s ROCE compared to its past returns. If you want to see how Agroton has performed in the past in other metrics, you can see this free chart of past profits, revenue and cash flow.
What the ROCE trend can tell us
It’s hard not to be impressed with Agroton’s returns on capital. Over the past five years, ROCE has remained relatively stable at around 22% and the company has deployed 53% more capital into its operations. Now considering the ROCE is an attractive 22%, this combination is actually quite attractive because it means the company can consistently put money to work and generate those high returns. If Agroton can continue like this, we would be very optimistic about its future.
The essentials of Agroton’s ROCE
Agroton has demonstrated its competence in generating high returns on increasing amounts of capital employed, which we are delighted with. However, over the past five years, the stock hasn’t provided much growth to shareholders in terms of total returns. For this reason, savvy investors may want to dig into this company in case it is a top investment.
Agroton has risks, we noticed 4 warning signs (and 1 which is significant) that we think you should know about.
If you want to find more stocks that have generated high returns, check out this free list of stocks with strong balance sheets that also generate high returns on equity.
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This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts only using unbiased methodology and our articles are not intended to be financial advice. It is not a recommendation to buy or sell stocks and does not take into account your objectives or financial situation. Our goal is to bring you targeted long-term analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price-sensitive companies or qualitative materials. Simply Wall St has no position in the stocks mentioned.