If you’re looking for a multi-bagger, there’s a few things to keep an eye out for. Amongst other things, we’ll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company’s 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. So on that note, Koss (NASDAQ:KOSS) looks quite promising in regards to its trends of return on capital.
Return On Capital Employed (ROCE): What is it?
For those who don’t know, ROCE is a measure of a company’s yearly pre-tax profit (its return), relative to the capital employed in the business. Analysts use this formula to calculate it for Koss:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets – Current Liabilities)
0.032 = US$849k ÷ (US$29m – US$2.5m) (Based on the trailing twelve months to March 2022).
Thus, Koss has an ROCE of 3.2%. Ultimately, that’s a low return and it under-performs the Consumer Durables industry average of 16%.
See our latest analysis for Koss
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’d like to look at how Koss has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.
The Trend Of ROCE
The fact that Koss 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 3.2% which is a sight for sore eyes. And unsurprisingly, like most companies trying to break into the black, Koss is utilizing 33% more capital than it was five 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.
What We Can Learn From Koss’ ROCE
To the delight of most shareholders, Koss has now broken into profitability. Since the stock has returned a staggering 301% to shareholders over the last five years, it looks like investors are recognizing these changes. In light of that, we think it’s worth looking further into this stock because if Koss can keep these trends up, it could have a bright future ahead.
Like most companies, Koss does come with some risks, and we’ve found 4 warning signs that you should be aware of.
While Koss isn’t earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.
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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.