To find a multi-bagger stock, what underlying trends should we look for in a company? Among other things, we will want to see two things; first, growth come back on capital employed (ROCE) and on the other hand, an expansion of the amount capital employed. Ultimately, this demonstrates that this is a company that reinvests its earnings at increasing rates of return. Speaking of which, we’ve noticed big changes in International Money Express’ (NASDAQ: IMXI) returns to capital, so let’s look.
Understanding return on capital employed (ROCE)
If you’ve never worked with ROCE before, it measures the “yield” (pre-tax profit) a company generates from the capital used in its business. The formula for this calculation on International Money Express is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets – Current Liabilities)
0.31 = $83 million ÷ ($399 million – $134 million) (Based on the last twelve months to September 2022).
So, International Money Express has a ROCE of 31%. This is a fantastic return and not only that, it exceeds the 12% average earned by companies in a similar industry.
In the chart above, we measured International Money Express’ past ROCE against its past performance, but the future is arguably more important. If you’re interested, you can check out analyst forecasts in our free analyst forecast report for the company.
So, what is the ROCE trend of International Money Express?
We like the trends we see from International Money Express. Figures show that over the past five years, returns generated on capital employed have increased significantly to 31%. Basically, the business earns more per dollar of invested capital and on top of that, 107% more capital is also utilized now. So we’re very inspired by what we’re seeing at International Money Express with its ability to reinvest capital profitably.
The basics of International Money Express ROCE
A business that increases its returns on capital and can constantly reinvest in itself is a highly sought after trait, and that is what International Money Express possesses. And investors seem to expect more in the future, as the stock has rewarded shareholders with a 60% return over the past three years. Therefore, we think it would be worth checking whether these trends will continue.
One more thing: we have identified 2 warning signs with International Money Express (at least 1 not to be overlooked) and understanding them would certainly help.
If you want to find more stocks that have generated high returns, check out this free list of stocks with strong balance sheets that also generate high returns on equity.
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This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts only using unbiased methodology and our articles are not intended to be financial advice. It is not a recommendation to buy or sell stocks and does not take into account your objectives or financial situation. Our goal is to bring you targeted long-term analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price-sensitive companies or qualitative materials. Simply Wall St has no position in the stocks mentioned.
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