Returns Are Gaining Momentum At Avingtrans (LON:AVG)
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. 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. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. With that in mind, we've noticed some promising trends at Avingtrans (LON:AVG) so let's look a bit deeper.
What Is 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. Analysts use this formula to calculate it for Avingtrans:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.062 = UK£8.0m ÷ (UK£181m - UK£51m) (Based on the trailing twelve months to November 2023).
Therefore, Avingtrans has an ROCE of 6.2%. In absolute terms, that's a low return and it also under-performs the Machinery industry average of 13%.
See our latest analysis for Avingtrans
Above you can see how the current ROCE for Avingtrans 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 Avingtrans .
So How Is Avingtrans' ROCE Trending?
Avingtrans has recently broken into profitability so their prior investments seem to be paying off. The company was generating losses five years ago, but now it's earning 6.2% which is a sight for sore eyes. Not only that, but the company is utilizing 66% more capital than before, but that's to be expected from a company trying to break into profitability. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, both common traits of a multi-bagger.
In Conclusion...
In summary, it's great to see that Avingtrans has managed to break into profitability and is continuing to reinvest in its business. And investors seem to expect more of this going forward, since the stock has rewarded shareholders with a 77% return over the last five years. In light of that, we think it's worth looking further into this stock because if Avingtrans can keep these trends up, it could have a bright future ahead.
On a final note, we've found 1 warning sign for Avingtrans that we think you should be aware of.
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.
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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.
