CPI Card Group (NASDAQ:PMTS) Is Investing Its Capital With Increasing Efficiency
There are a few key trends to look for if we want to identify the next multi-bagger. Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. Speaking of which, we noticed some great changes in CPI Card Group's (NASDAQ:PMTS) returns on capital, so let's have a look.
What Is 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. The formula for this calculation on CPI Card Group is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.21 = US$53m ÷ (US$321m - US$69m) (Based on the trailing twelve months to June 2024).
So, CPI Card Group has an ROCE of 21%. That's a fantastic return and not only that, it outpaces the average of 8.2% earned by companies in a similar industry.
View our latest analysis for CPI Card Group
In the above chart we have measured CPI Card Group's prior ROCE against its prior performance, but the future is arguably more important. If you'd like, you can check out the forecasts from the analysts covering CPI Card Group for free.
So How Is CPI Card Group's ROCE Trending?
Investors would be pleased with what's happening at CPI Card Group. Over the last five years, returns on capital employed have risen substantially to 21%. The amount of capital employed has increased too, by 45%. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.
The Key Takeaway
All in all, it's terrific to see that CPI Card Group is reaping the rewards from prior investments and is growing its capital base. And a remarkable 964% total return over the last five years tells us that investors are expecting more good things to come in the future. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.
If you'd like to know more about CPI Card Group, we've spotted 4 warning signs, and 1 of them is a bit unpleasant.
If you'd like to see other companies earning high returns, check out our free list of companies earning high returns with solid balance sheets here.
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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.