Yahoo Finance Investors Should Be Encouraged By Gatekeeper Systems' (CVE:GSI) Returns On Capital
If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out for. In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. With that in mind, the ROCE of Gatekeeper Systems (CVE:GSI) looks great, so lets see what the trend can tell us.
Return On Capital Employed (ROCE): What Is It?
If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. Analysts use this formula to calculate it for Gatekeeper Systems:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.29 = CA$5.6m ÷ (CA$22m - CA$3.1m) (Based on the trailing twelve months to November 2023).
So, Gatekeeper Systems has an ROCE of 29%. That's a fantastic return and not only that, it outpaces the average of 14% earned by companies in a similar industry.
View our latest analysis for Gatekeeper Systems
Historical performance is a great place to start when researching a stock so above you can see the gauge for Gatekeeper Systems' ROCE against it's prior returns. If you're interested in investigating Gatekeeper Systems' past further, check out this free graph covering Gatekeeper Systems' past earnings, revenue and cash flow.
So How Is Gatekeeper Systems' ROCE Trending?
The fact that Gatekeeper Systems is now generating some pre-tax profits from its prior investments is very encouraging. The company was generating losses five years ago, but now it's earning 29% which is a sight for sore eyes. In addition to that, Gatekeeper Systems is employing 197% more capital than previously which is expected of a company that's trying to break into profitability. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, both common traits of a multi-bagger.
In Conclusion...
To the delight of most shareholders, Gatekeeper Systems has now broken into profitability. And a remarkable 668% total return over the last five years tells us that investors are expecting more good things to come in the future. In light of that, we think it's worth looking further into this stock because if Gatekeeper Systems can keep these trends up, it could have a bright future ahead.
Gatekeeper Systems does have some risks though, and we've spotted 1 warning sign for Gatekeeper Systems that you might be interested in.
High returns are a key ingredient to strong performance, so check out our free list ofstocks earning high returns on equity with solid balance sheets.
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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. 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.
