Be Wary Of DATA MODUL Produktion und Vertrieb von elektronischen Systemen (ETR:DAM) And Its Returns On Capital
If you're looking for a multi-bagger, there's a few things to keep an eye out for. Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base 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. However, after briefly looking over the numbers, we don't think DATA MODUL Produktion und Vertrieb von elektronischen Systemen (ETR:DAM) has the makings of a multi-bagger going forward, but let's have a look at why that may be.
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 DATA MODUL Produktion und Vertrieb von elektronischen Systemen is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.15 = €25m ÷ (€221m - €57m) (Based on the trailing twelve months to September 2023).
Thus, DATA MODUL Produktion und Vertrieb von elektronischen Systemen has an ROCE of 15%. On its own, that's a standard return, however it's much better than the 8.3% generated by the Electronic industry.
View our latest analysis for DATA MODUL Produktion und Vertrieb von elektronischen Systemen
Above you can see how the current ROCE for DATA MODUL Produktion und Vertrieb von elektronischen Systemen 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 report for DATA MODUL Produktion und Vertrieb von elektronischen Systemen.
What Can We Tell From DATA MODUL Produktion und Vertrieb von elektronischen Systemen's ROCE Trend?
On the surface, the trend of ROCE at DATA MODUL Produktion und Vertrieb von elektronischen Systemen doesn't inspire confidence. Over the last five years, returns on capital have decreased to 15% from 20% five years ago. However it looks like DATA MODUL Produktion und Vertrieb von elektronischen Systemen might be reinvesting for long term growth because while capital employed has increased, the company's sales haven't changed much in the last 12 months. It's worth keeping an eye on the company's earnings from here on to see if these investments do end up contributing to the bottom line.
The Key Takeaway
Bringing it all together, while we're somewhat encouraged by DATA MODUL Produktion und Vertrieb von elektronischen Systemen's reinvestment in its own business, we're aware that returns are shrinking. And investors appear hesitant that the trends will pick up because the stock has fallen 21% in the last five years. All in all, the inherent trends aren't typical of multi-baggers, so if that's what you're after, we think you might have more luck elsewhere.
While DATA MODUL Produktion und Vertrieb von elektronischen Systemen doesn't shine too bright in this respect, it's still worth seeing if the company is trading at attractive prices. You can find that out with our FREE intrinsic value estimation on our platform.
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.
