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EVO Payments (NASDAQ:EVOP) Is Doing The Right Things To Multiply Its Share Price

If you're looking for a multi-bagger, there's a few things to keep an eye out for. 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 EVO Payments (NASDAQ:EVOP) and its trend of ROCE, we really liked what we saw.

Return On Capital Employed (ROCE): What is it?

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. Analysts use this formula to calculate it for EVO Payments:

Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)

0.064 = US$75m ÷ (US$1.8b - US$622m) (Based on the trailing twelve months to March 2022).

Therefore, EVO Payments has an ROCE of 6.4%. Ultimately, that's a low return and it under-performs the IT industry average of 12%.

Check out our latest analysis for EVO Payments

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In the above chart we have measured EVO Payments' prior ROCE against its prior performance, but the future is arguably more important. If you'd like to see what analysts are forecasting going forward, you should check out our free report for EVO Payments.

What Does the ROCE Trend For EVO Payments Tell Us?

We're glad to see that ROCE is heading in the right direction, even if it is still low at the moment. The data shows that returns on capital have increased substantially over the last five years to 6.4%. Basically the business is earning more per dollar of capital invested and in addition to that, 54% more capital is being employed now too. So we're very much inspired by what we're seeing at EVO Payments thanks to its ability to profitably reinvest capital.

Our Take On EVO Payments' 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 EVO Payments has. Given the stock has declined 22% in the last three years, this could be a good investment if the valuation and other metrics are also appealing. With that in mind, we believe the promising trends warrant this stock for further investigation.

EVO Payments does have some risks though, and we've spotted 1 warning sign for EVO Payments that you might be interested in.

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.

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