Did you know that there are financial metrics that can provide clues of a potential multi-bagger? Typically, we will want to notice a growth trend to return to on capital employed (ROCE) and at the same time, a based capital employed. Ultimately, this demonstrates that this is a company that reinvests its earnings at increasing rates of return. Therefore, when we looked at ROCE trends at Nolato (STO:NOLA B), we liked what we saw.
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 Nolato:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets – Current Liabilities)
0.20 = kr1.3b ÷ (kr9.5b – kr3.0b) (Based on the last twelve months to September 2021).
So, Nolato has a ROCE of 20%. That’s a fantastic return and not only that, it tops the 6.5% average earned by companies in a similar industry.
See our latest review for Nolato
In the chart above, we measured Nolato’s past ROCE against its past performance, but the future is arguably more important. If you want, you can check out analyst forecasts covering Nolato here for free.
What can we say about Nolato’s ROCE trend?
We’d rather be happy with capital returns like Nolato. Over the past five years, ROCE has remained relatively stable at around 20% and the company has deployed 232% more capital into its operations. Such returns are the envy of most companies and given that they have repeatedly reinvested at these rates, even better. If these trends can continue, we wouldn’t be surprised if the company went multi-bagger.
In summary, we are pleased to see that Nolato has compounded returns by reinvesting at consistently high rates of return, as these are common characteristics of a multi-bagger. On top of that, the stock has rewarded shareholders with a remarkable return of 343% for those who have held over the past five years. So while the stock may be more “expensive” than it was before, we believe the strong fundamentals warrant this stock for further research.
If you want to know the risks that Nolato faces, we have discovered 2 warning signs of which you should be aware.
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.