Yahoo Finance Advance NanoTek (ASX:ANO) Might Have The Makings Of A Multi-Bagger
There are a few key trends to look for if we want to identify the next multi-bagger. Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. So on that note, Advance NanoTek (ASX:ANO) looks quite promising in regards to its trends of return on capital.
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. Analysts use this formula to calculate it for Advance NanoTek:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.11 = AU$3.4m ÷ (AU$33m - AU$1.8m) (Based on the trailing twelve months to December 2020).
Therefore, Advance NanoTek has an ROCE of 11%. By itself that's a normal return on capital and it's in line with the industry's average returns of 11%.
See our latest analysis for Advance NanoTek
Historical performance is a great place to start when researching a stock so above you can see the gauge for Advance NanoTek's ROCE against it's prior returns. If you're interested in investigating Advance NanoTek's past further, check out this free graph of past earnings, revenue and cash flow.
What Can We Tell From Advance NanoTek's ROCE Trend?
We like the trends that we're seeing from Advance NanoTek. The data shows that returns on capital have increased substantially over the last five years to 11%. The company is effectively making more money per dollar of capital used, and it's worth noting that the amount of capital has increased too, by 491%. 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.
Our Take On Advance NanoTek's ROCE
A company that is growing its returns on capital and can consistently reinvest in itself is a highly sought after trait, and that's what Advance NanoTek has. And a remarkable 1,353% total return over the last five years tells us that investors are expecting more good things to come in the future. 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.
If you want to know some of the risks facing Advance NanoTek we've found 3 warning signs (1 is concerning!) that you should be aware of before investing here.
If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive returns on equity.
This article by Simply Wall St is general in nature. 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.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
