Yahoo Finance We Think Skellerup Holdings (NZSE:SKL) Might Have The DNA Of A Multi-Bagger
If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. 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. 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 Skellerup Holdings' (NZSE:SKL) look very promising so lets take a look.
What Is Return On Capital Employed (ROCE)?
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. To calculate this metric for Skellerup Holdings, this is the formula:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.23 = NZ$64m ÷ (NZ$337m - NZ$56m) (Based on the trailing twelve months to June 2022).
So, Skellerup Holdings has an ROCE of 23%. In absolute terms that's a great return and it's even better than the Machinery industry average of 13%.
View our latest analysis for Skellerup Holdings
In the above chart we have measured Skellerup Holdings' 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 Skellerup Holdings here for free.
How Are Returns Trending?
The trends we've noticed at Skellerup Holdings are quite reassuring. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 23%. The amount of capital employed has increased too, by 37%. So we're very much inspired by what we're seeing at Skellerup Holdings thanks to its ability to profitably reinvest capital.
The Key Takeaway
In summary, it's great to see that Skellerup Holdings can compound returns by consistently reinvesting capital at increasing rates of return, because these are some of the key ingredients of those highly sought after multi-baggers. And with the stock having performed exceptionally well over the last five years, these patterns are being accounted for by investors. In light of that, we think it's worth looking further into this stock because if Skellerup Holdings can keep these trends up, it could have a bright future ahead.
If you'd like to know about the risks facing Skellerup Holdings, we've discovered 2 warning signs that you should be aware of.
High returns are a key ingredient to strong performance, so check out our free list ofstocks 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.
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