Returns on Investment Offer SFS Group a bright future (VTX: SFSN)
What underlying trends should we look for in a company to find a multi-bagger stock? Ideally, a company has two trends; first, a growing one return on the capital employed (ROCE) and, secondly, an increasing one height of the capital employed. This shows us that it is a compounding machine that can continually reinvest its earnings in the business and generate higher returns. And with this in mind, we see the trends at of the SFS group (VTX: SFSN) look very promising, so let’s take a look.
Return on Capital Employed (ROCE): What is it?
For those unsure of what ROCE is, it measures the amount of pre-tax profit a company can make from the capital invested in its business. The formula for this calculation by the SFS Group is:
Return on capital employed = earnings before interest and taxes (EBIT) ÷ (total assets – current liabilities)
0.21 = CHF 316 million ÷ (CHF 1.8 billion – CHF 260 million) (Based on the last twelve months through June 2021).
Hence, The SFS Group has a ROCE of 21%. In absolute terms, this is a great return, and even better than the machine industry average of 9.9%.
Check out our latest analysis for the SFS Group
In the graph above we compared the SFS Group’s past ROCE to its past performance, but the future arguably is more important. If you are interested, you can read the analyst forecasts in our for free Report on analyst forecast for the company.
What can we tell about the SFS Group’s ROCE trend?
We are pretty satisfied with the development of the ROCE at the SFS Group. We found that returns on capital employed have increased 208% over the past five years. This is a very positive trend because it means the company is making more for every dollar invested. In terms of capital employed, SFS Group appears to do more with less as the company requires 23% less capital to operate. SFS Group may be selling some assets, so it is worth investigating whether the company has any plans for future investments to increase returns even further.
The key to take away
In summary, we are pleased that the SFS Group was able to achieve higher returns with less capital. With the stock returning a solid 70% to shareholders over the past five years, it can be said that investors are starting to see these changes. With that in mind, we think it is worth taking a closer look at this stock because if SFS Group can maintain these trends, it could have a bright future.
However, the SFS Group carries some risks as we have identified 2 warning signs in our investment analysis, and 1 of them is significant …
SFS Group isn’t the only high-yielding stock. If you want to see more, visit our for free List of companies that have high returns on equity with solid fundamentals.
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