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. Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. And in light of that, the trends we're seeing at Qualitau's (TLV:QLTU) look very promising so lets take a look.
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 Qualitau is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.42 = US$14m ÷ (US$42m - US$8.4m) (Based on the trailing twelve months to June 2023).
Therefore, Qualitau has an ROCE of 42%. That's a fantastic return and not only that, it outpaces the average of 8.2% earned by companies in a similar industry.
Historical performance is a great place to start when researching a stock so above you can see the gauge for Qualitau's ROCE against it's prior returns. If you're interested in investigating Qualitau's past further, check out this free graph of past earnings, revenue and cash flow.
Investors would be pleased with what's happening at Qualitau. The data shows that returns on capital have increased substantially over the last five years to 42%. Basically the business is earning more per dollar of capital invested and in addition to that, 182% more capital is being employed now too. So we're very much inspired by what we're seeing at Qualitau thanks to its ability to profitably reinvest capital.
In summary, it's great to see that Qualitau can compound returns by consistently reinvesting capital at increasing rates of return, because these are some of the key ingredients of those highly sought after multi-baggers. And a remarkable 453% total return over the last five years tells us that investors are expecting more good things to come in the future. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.
On a final note, we've found 3 warning signs for Qualitau that we think you should be aware of.
If you want to search for more stocks that have been earning high returns, check out this free list of stocks with solid balance sheets that are also earning 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.