What are the early trends we should look for to identify a stock that could multiply in value over the long term? In a perfect world, we’d like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. Ultimately, this demonstrates that it’s a business that is reinvesting profits at increasing rates of return. So when we looked at Glenveagh Properties (ISE:GVR) and its trend of ROCE, we really liked what we saw.
Return On Capital Employed (ROCE): What Is It?
If you haven’t worked with ROCE before, it measures the ‘return’ (pre-tax profit) a company generates from capital employed in its business. Analysts use this formula to calculate it for Glenveagh Properties:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets – Current Liabilities)
0.066 = €60m ÷ (€995m – €92m) (Based on the trailing twelve months to June 2022).
Thus, Glenveagh Properties has an ROCE of 6.6%. In absolute terms, that’s a low return and it also under-performs the Consumer Durables industry average of 11%.
Check out our latest analysis for Glenveagh Properties
Above you can see how the current ROCE for Glenveagh Properties compares to its prior returns on capital, but there’s only so much you can tell from the past. If you’d like to see what analysts are forecasting going forward, you should check out our free report for Glenveagh Properties.
So How Is Glenveagh Properties’ ROCE Trending?
We’re delighted to see that Glenveagh Properties is reaping rewards from its investments and is now generating some pre-tax profits. Shareholders would no doubt be pleased with this because the business was loss-making four years ago but is is now generating 6.6% on its capital. And unsurprisingly, like most companies trying to break into the black, Glenveagh Properties is utilizing 21% more capital than it was four years ago. This can indicate that there’s plenty of opportunities to invest capital internally and at ever higher rates, both common traits of a multi-bagger.
The Key Takeaway
To the delight of most shareholders, Glenveagh Properties has now broken into profitability. Since the stock has returned a solid 25% to shareholders over the last three years, it’s fair to say investors are beginning to recognize these changes. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.
While Glenveagh Properties looks impressive, no company is worth an infinite price. The intrinsic value infographic in our free research report helps visualize whether GVR is currently trading for a fair price.
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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