If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? Amongst other things, we’ll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company’s amount 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. So when we looked at the ROCE trend of va-Q-tec (HMSE:VQT) we really liked what we saw.

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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. To calculate this metric for va-Q-tec, this is the formula:

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

0.22 = €23m ÷ (€140m – €37m) (Based on the trailing twelve months to December 2024).

Therefore, va-Q-tec has an ROCE of 22%. In absolute terms that’s a great return and it’s even better than the Machinery industry average of 8.7%.

View our latest analysis for va-Q-tec

Historical performance is a great place to start when researching a stock so above you can see the gauge for va-Q-tec’s ROCE against it’s prior returns. If you’re interested in investigating va-Q-tec’s past further, check out this free graph covering va-Q-tec’s past earnings, revenue and cash flow.

We’re delighted to see that va-Q-tec is reaping rewards from its investments and is now generating some pre-tax profits. The company was generating losses five years ago, but now it’s earning 22% which is a sight for sore eyes. In addition to that, va-Q-tec is employing 33% more capital than previously which is expected of a company that’s trying to break into profitability. We like this trend, because it tells us the company has profitable reinvestment opportunities available to it, and if it continues going forward that can lead to a multi-bagger performance.

Long story short, we’re delighted to see that va-Q-tec’s reinvestment activities have paid off and the company is now profitable. Since the stock has returned a solid 10% to shareholders over the last year, it’s fair to say investors are beginning to recognize these changes. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.