U.S. Markets closed
  • S&P 500

    3,768.25
    -27.29 (-0.72%)
     
  • Dow 30

    30,814.26
    -177.24 (-0.57%)
     
  • Nasdaq

    12,998.50
    -114.10 (-0.87%)
     
  • Russell 2000

    2,123.20
    -32.15 (-1.49%)
     
  • Crude Oil

    52.01
    -0.35 (-0.67%)
     
  • Gold

    1,834.50
    +4.60 (+0.25%)
     
  • Silver

    25.03
    +0.17 (+0.68%)
     
  • EUR/USD

    1.2080
    -0.0004 (-0.0362%)
     
  • 10-Yr Bond

    1.0970
    -0.0320 (-2.83%)
     
  • Vix

    24.34
    +1.09 (+4.69%)
     
  • GBP/USD

    1.3541
    -0.0042 (-0.3101%)
     
  • USD/JPY

    103.7390
    -0.0610 (-0.0588%)
     
  • BTC-USD

    36,184.99
    +126.11 (+0.35%)
     
  • CMC Crypto 200

    702.02
    -33.12 (-4.50%)
     
  • FTSE 100

    6,727.31
    -8.40 (-0.12%)
     
  • Nikkei 225

    28,242.21
    -276.97 (-0.97%)
     

Has inTEST (NYSEMKT:INTT) Got What It Takes To Become A Multi-Bagger?

Simply Wall St
·3 min read

There are a few key trends to look for if we want to identify the next multi-bagger. Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. However, after investigating inTEST (NYSEMKT:INTT), we don't think it's current trends fit the mold of a multi-bagger.

Understanding 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. The formula for this calculation on inTEST is:

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

0.0056 = US$287k ÷ (US$60m - US$8.8m) (Based on the trailing twelve months to June 2020).

Thus, inTEST has an ROCE of 0.6%. In absolute terms, that's a low return and it also under-performs the Semiconductor industry average of 10%.

View our latest analysis for inTEST

roce
roce

In the above chart we have measured inTEST's prior ROCE against its prior performance, but the future is arguably more important. If you're interested, you can view the analysts predictions in our free report on analyst forecasts for the company.

The Trend Of ROCE

On the surface, the trend of ROCE at inTEST doesn't inspire confidence. Around five years ago the returns on capital were 14%, but since then they've fallen to 0.6%. Given the business is employing more capital while revenue has slipped, this is a bit concerning. If this were to continue, you might be looking at a company that is trying to reinvest for growth but is actually losing market share since sales haven't increased.

The Key Takeaway

In summary, we're somewhat concerned by inTEST's diminishing returns on increasing amounts of capital. Investors must expect better things on the horizon though because the stock has risen 35% in the last five years. Either way, we aren't huge fans of the current trends and so with that we think you might find better investments elsewhere.

One more thing, we've spotted 1 warning sign facing inTEST that you might find interesting.

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.

This article by Simply Wall St is general in nature. 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com.