If you're not sure where to start when looking for your next multibagger, there are some important trends to look out for. In an ideal world, companies would invest more capital in their operations, and ideally the return on that capital would also increase. Simply put, this type of business is a compound interest machine, meaning you are continually reinvesting your earnings at an ever-higher rate of return. Taking that into consideration, I found that MGI Digital Technology Societe Anonymous (EPA:ALMDG) and its ROCE trend, we weren't too excited about it.

What is return on capital employed (ROCE)?

For those who don't know, ROCE is a measure of a company's annual pre-tax profit (return) on the capital employed in the business. To calculate this metric for MGI Digital Technology Société Anonyme, use the following formula:

Return on Capital Employed = Earnings before interest and tax (EBIT) ÷ (Total assets – Current liabilities)

0.055 = 7.2 million euros ÷ (142 million euros – 12 million euros) (Based on the previous 12 months to June 2023).

therefore, MGI Digital Technology Société Anonyme's ROCE is 5.5%. That's in line with the industry average of 5.5%, but that's still a low return on its own.

Check out our latest analysis for MGI Digital Technology Société Anonyme.

ENXTPA:ALMDG Return on Capital Employed as of April 5, 2024

In the graph above, we have measured MGI Digital Technology Société Anonyme's previous ROCE compared to its previous performance, but the future is probably more important. To see what analysts are predicting for the future, check out the free analyst report for MGI Digital Technology Société Anonyme.

What are the return trends like?

On the surface, the ROCE trend at MGI Digital Technology Société Anonyme doesn't inspire confidence. Over the past five years, the return on capital has fallen from 15% five years ago to 5.5%. On the other hand, the company is deploying more capital without seeing any improvement in sales over the last year, which could suggest that these investments are a long-term strategy. It's worth keeping an eye on the company's earnings going forward to see if these investments ultimately contribute to its bottom line.

What we can learn from MGI Digital Technology Société Anonyme's ROCE

In conclusion, we find that although MGI Digital Technology Société Anonyme is reinvesting in the business, its revenues are declining. Investors also appear hesitant to see the trend accelerate, as the stock is down 59% over the past five years. Therefore, based on the analysis conducted in this article, we don't think MGI Digital Technology Société Anonyme has the makings of a multibagger.

MGI Digital Technology Société Anonyme is a less stellar company in this regard, but it's worth noting whether it's trading at an attractive price.you can find it Free estimate of ALMDG's intrinsic value on our platform.

If you want to find solid companies with high earnings, check this out. free List of companies with good balance sheets and good return on equity.

Valuation is complex, but we help make it simple.

Check out our comprehensive analysis, including below, to see if MGI Digital Technology Société Anonyme is potentially overvalued or undervalued. Fair value estimates, risks and caveats, dividends, insider trading, and financial health.

See free analysis

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts using only unbiased methodologies, and the articles are not intended as financial advice. This is not a recommendation to buy or sell any stock, and does not take into account your objectives or financial situation. We aim to provide long-term, focused analysis based on fundamental data. Note that our analysis may not factor in the latest announcements or qualitative material from price-sensitive companies. Simply Wall St has no position in any stocks mentioned.



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