If you're looking for a multi-bagger, there's a few things to keep an eye out for. One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing amount of capital employed. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. And in light of that, the trends we're seeing at iEnergizer's (LON:IBPO) look very promising so lets take a look.
Return On Capital Employed (ROCE): What is it?
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. The formula for this calculation on iEnergizer is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.34 = US$70m ÷ (US$255m - US$53m) (Based on the trailing twelve months to September 2021).
Therefore, iEnergizer has an ROCE of 34%. In absolute terms that's a great return and it's even better than the IT industry average of 13%.
See our latest analysis for iEnergizer
In the above chart we have measured iEnergizer's prior ROCE against its prior performance, but the future is arguably more important. If you'd like to see what analysts are forecasting going forward, you should check out our free report for iEnergizer.
What The Trend Of ROCE Can Tell Us
The trends we've noticed at iEnergizer are quite reassuring. The data shows that returns on capital have increased substantially over the last five years to 34%. The amount of capital employed has increased too, by 28%. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, a combination that's common among multi-baggers.
What We Can Learn From iEnergizer's ROCE
All in all, it's terrific to see that iEnergizer is reaping the rewards from prior investments and is growing its capital base. Since the stock has returned a staggering 652% to shareholders over the last five years, it looks like investors are recognizing these changes. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.
If you'd like to know about the risks facing iEnergizer, we've discovered 3 warning signs that you should be aware of.
iEnergizer is not the only stock earning high returns. If you'd like to see more, check out our free list of companies earning high returns on equity with solid fundamentals.
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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.