Eagle Eye Solutions Group (LON:EYE) Might Have The Makings Of A Multi-Bagger

To find a multi-bagger stock, what are the underlying trends we should look for in a business? 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. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. Speaking of which, we noticed some great changes in Eagle Eye Solutions Group’s (LON:EYE) returns on capital, so let’s have a look.

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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. The formula for this calculation on Eagle Eye Solutions Group is:

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

0.035 = UK£1.4m ÷ (UK£52m – UK£13m) (Based on the trailing twelve months to December 2024).

Thus, Eagle Eye Solutions Group has an ROCE of 3.5%. Ultimately, that’s a low return and it under-performs the Media industry average of 12%.

View our latest analysis for Eagle Eye Solutions Group

Above you can see how the current ROCE for Eagle Eye Solutions Group compares to its prior returns on capital, but there’s only so much you can tell from the past. If you’re interested, you can view the analysts predictions in our free analyst report for Eagle Eye Solutions Group .

We’re delighted to see that Eagle Eye Solutions Group is reaping rewards from its investments and is now generating some pre-tax profits. Shareholders would no doubt be pleased with this because the business was loss-making five years ago but is is now generating 3.5% on its capital. In addition to that, Eagle Eye Solutions Group is employing 711% 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.

On a related note, the company’s ratio of current liabilities to total assets has decreased to 25%, which basically reduces it’s funding from the likes of short-term creditors or suppliers. So shareholders would be pleased that the growth in returns has mostly come from underlying business performance.