Return Trends At Kontron (ETR:SANT) Aren't Appealing

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. Although, when we looked at Kontron (ETR:SANT), it didn't seem to tick all of these boxes.

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What Is Return On Capital Employed (ROCE)?

For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. The formula for this calculation on Kontron is:

Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)

0.09 = €99m ÷ (€1.7b - €621m) (Based on the trailing twelve months to March 2025).

Thus, Kontron has an ROCE of 9.0%. Even though it's in line with the industry average of 9.0%, it's still a low return by itself.

See our latest analysis for Kontron

In the above chart we have measured Kontron's prior ROCE against its prior performance, but the future is arguably more important. If you'd like to see what analysts are forecasting going forward, you should check out our free analyst report for Kontron .

What Can We Tell From Kontron's ROCE Trend?

There are better returns on capital out there than what we're seeing at Kontron. The company has consistently earned 9.0% for the last five years, and the capital employed within the business has risen 55% in that time. Given the company has increased the amount of capital employed, it appears the investments that have been made simply don't provide a high return on capital.

What We Can Learn From Kontron's ROCE

Long story short, while Kontron has been reinvesting its capital, the returns that it's generating haven't increased. Unsurprisingly, the stock has only gained 20% over the last five years, which potentially indicates that investors are ing for this going forward. Therefore, if you're looking for a multi-bagger, we'd propose looking at other options.

One more thing, we've spotted 1 warning sign facing Kontron that you might find interesting.

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive returns on equity.

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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 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.