7C Solarparken (ETR:HRPK) Might Have The Makings Of A Multi-Bagger
To find a multi-bagger stock, what are the underlying trends we should look for in a business? Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. So on that note, 7C Solarparken (ETR:HRPK) looks quite promising in regards to its trends of return on capital.
Understanding 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. To calculate this metric for 7C Solarparken, this is the formula:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.059 = €32m ÷ (€575m - €35m) (Based on the trailing twelve months to June 2023).
So, 7C Solarparken has an ROCE of 5.9%. Even though it's in line with the industry average of 5.7%, it's still a low return by itself.
View our latest analysis for 7C Solarparken
Above you can see how the current ROCE for 7C Solarparken 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 analyst report for 7C Solarparken .
What Does the ROCE Trend For 7C Solarparken Tell Us?
Even though ROCE is still low in absolute terms, it's good to see it's heading in the right direction. The data shows that returns on capital have increased substantially over the last five years to 5.9%. The amount of capital employed has increased too, by 76%. So we're very much inspired by what we're seeing at 7C Solarparken thanks to its ability to profitably reinvest capital.
The Bottom Line On 7C Solarparken's ROCE
A company that is growing its returns on capital and can consistently reinvest in itself is a highly sought after trait, and that's what 7C Solarparken has. Investors may not be impressed by the favorable underlying trends yet because over the last five years the stock has only returned 31% to shareholders. So exploring more about this stock could uncover a good opportunity, if the valuation and other metrics stack up.
If you want to continue researching 7C Solarparken, you might be interested to know about the 3 warning signs that our analysis has discovered.
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.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
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.
