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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. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. Speaking of which, we noticed some great changes in Albany International's (NYSE:AIN) returns on capital, so let's have a look.
What is Return On Capital Employed (ROCE)?
Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. The formula for this calculation on Albany International is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.13 = US$171m ÷ (US$1.5b - US$182m) (Based on the trailing twelve months to September 2021).
So, Albany International has an ROCE of 13%. In absolute terms, that's a satisfactory return, but compared to the Machinery industry average of 9.5% it's much better.
In the above chart we have measured Albany International's prior ROCE against its prior performance, but the future is arguably more important. If you'd like, you can check out the forecasts from the analysts covering Albany International here for free.
What Can We Tell From Albany International's ROCE Trend?
We like the trends that we're seeing from Albany International. Over the last five years, returns on capital employed have risen substantially to 13%. Basically the business is earning more per dollar of capital invested and in addition to that, 22% 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 Albany International has. Since the stock has returned a staggering 117% to shareholders over the last five years, it looks like investors are recognizing these changes. In light of that, we think it's worth looking further into this stock because if Albany International can keep these trends up, it could have a bright future ahead.
While Albany International looks impressive, no company is worth an infinite price. The intrinsic value infographic in our free research report helps visualize whether AIN is currently trading for a fair price.
While Albany International isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.
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.
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