Funkwerk (FRA:FEW) Could Become A Multi-Bagger

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing 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. With that in mind, the ROCE of Funkwerk (FRA:FEW) looks great, so lets see what the trend can tell us.

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. To calculate this metric for Funkwerk, this is the formula:

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

0.26 = €31m ÷ (€126m - €6.9m) (Based on the trailing twelve months to June 2022).

Therefore, Funkwerk has an ROCE of 26%. In absolute terms that's a great return and it's even better than the Communications industry average of 12%.

Check out our latest analysis for Funkwerk

Historical performance is a great place to start when researching a stock so above you can see the gauge for Funkwerk's ROCE against it's prior returns. If you want to delve into the historical earnings, revenue and cash flow of Funkwerk, check out these free graphs here.

The Trend Of ROCE

We like the trends that we're seeing from Funkwerk. The data shows that returns on capital have increased substantially over the last five years to 26%. The amount of capital employed has increased too, by 142%. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, a combination that's common among multi-baggers.

In Conclusion...

To sum it up, Funkwerk has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. Since the stock has returned a staggering 194% to shareholders over the last five years, it looks like investors are recognizing these changes. So given the stock has proven it has promising trends, it's worth researching the company further to see if these trends are likely to persist.

While Funkwerk looks impressive, no company is worth an infinite price. The intrinsic value infographic in our free research report helps visualize whether FEW is currently trading for a fair price.

Funkwerk is not the only stock earning high returns. If you'd like to see more, check out our free list of companies earning high returns on equity with solid fundamentals.

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.

Join A Paid User Research Session
You’ll receive a US$30 Amazon Gift card for 1 hour of your time while helping us build better investing tools for the individual investors like yourself. Sign up here