Finding a business that has the potential to grow substantially is not easy, but it is possible if we look at a few key financial metrics. Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. If you see this, it typically means it’s a company with a great business model and plenty of profitable reinvestment opportunities. So when we looked at Argent Industrial (JSE:ART) and its trend of ROCE, we really liked what we saw.
For those that aren’t sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. Analysts use this formula to calculate it for Argent Industrial:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets – Current Liabilities)
0.17 = R327m ÷ (R2.6b – R645m) (Based on the trailing twelve months to September 2024).
So, Argent Industrial has an ROCE of 17%. In absolute terms, that’s a pretty normal return, and it’s somewhat close to the Building industry average of 21%.
See our latest analysis for Argent Industrial
While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you’d like to look at how Argent Industrial has performed in the past in other metrics, you can view this free graph of Argent Industrial’s past earnings, revenue and cash flow.
Argent Industrial is displaying some positive trends. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 17%. Basically the business is earning more per dollar of capital invested and in addition to that, 54% more capital is being employed now too. 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.
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 Argent Industrial has. And a remarkable 441% 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’d like to know about the risks facing Argent Industrial, we’ve discovered 3 warning signs that you should be aware of.