Yahoo Finance Returns On Capital Are Showing Encouraging Signs At Comptoir Group (LON:COM)
If you're looking for a multi-bagger, there's a few things to keep an eye out for. Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. With that in mind, we've noticed some promising trends at Comptoir Group (LON:COM) so let's look a bit deeper.
What Is Return On Capital Employed (ROCE)?
For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. To calculate this metric for Comptoir Group, this is the formula:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.078 = UK£1.8m ÷ (UK£32m - UK£9.4m) (Based on the trailing twelve months to January 2023).
So, Comptoir Group has an ROCE of 7.8%. On its own, that's a low figure but it's around the 7.4% average generated by the Hospitality industry.
View our latest analysis for Comptoir Group
While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you're interested in investigating Comptoir Group's past further, check out this free graph of past earnings, revenue and cash flow.
What Does the ROCE Trend For Comptoir Group Tell Us?
The fact that Comptoir Group is now generating some pre-tax profits from its prior investments is very encouraging. The company was generating losses five years ago, but now it's earning 7.8% which is a sight for sore eyes. Not only that, but the company is utilizing 51% more capital than before, but that's to be expected from a company trying to break into profitability. We like this trend, because it tells us the company has profitable reinvestment opportunities available to it, and if it continues going forward that can lead to a multi-bagger performance.
The Bottom Line On Comptoir Group's ROCE
Overall, Comptoir Group gets a big tick from us thanks in most part to the fact that it is now profitable and is reinvesting in its business. Astute investors may have an opportunity here because the stock has declined 37% in the last five years. That being the case, research into the company's current valuation metrics and future prospects seems fitting.
On a separate note, we've found 3 warning signs for Comptoir Group you'll probably want to know about.
For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high returns on equity.
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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.
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