Return Trends At Pfeiffer Vacuum Technology (ETR:PFV) Aren't Appealing
If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out for. Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing 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. That's why when we briefly looked at Pfeiffer Vacuum Technology's (ETR:PFV) ROCE trend, we were pretty happy with what we saw.
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. The formula for this calculation on Pfeiffer Vacuum Technology is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.15 = €117m ÷ (€962m - €204m) (Based on the trailing twelve months to September 2023).
So, Pfeiffer Vacuum Technology has an ROCE of 15%. In absolute terms, that's a satisfactory return, but compared to the Machinery industry average of 11% it's much better.
Check out our latest analysis for Pfeiffer Vacuum Technology
Above you can see how the current ROCE for Pfeiffer Vacuum Technology compares to its prior returns on capital, but there's only so much you can tell from the past. If you're interested, you can view the analysts predictions in our free report on analyst forecasts for the company.
So How Is Pfeiffer Vacuum Technology's ROCE Trending?
While the current returns on capital are decent, they haven't changed much. The company has employed 61% more capital in the last five years, and the returns on that capital have remained stable at 15%. Since 15% is a moderate ROCE though, it's good to see a business can continue to reinvest at these decent rates of return. Stable returns in this ballpark can be unexciting, but if they can be maintained over the long run, they often provide nice rewards to shareholders.
Our Take On Pfeiffer Vacuum Technology's ROCE
To sum it up, Pfeiffer Vacuum Technology has simply been reinvesting capital steadily, at those decent rates of return. In light of this, the stock has only gained 38% over the last five years for shareholders who have owned the stock in this period. So to determine if Pfeiffer Vacuum Technology is a multi-bagger going forward, we'd suggest digging deeper into the company's other fundamentals.
One more thing, we've spotted 1 warning sign facing Pfeiffer Vacuum Technology that you might find interesting.
While Pfeiffer Vacuum Technology may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.
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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.
