To find a multi-bagger stock, what are the underlying trends we should look for in a business? Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. And in light of that, the trends we're seeing at Applied Industrial Technologies' (NYSE:AIT) look very promising so lets take a look.

Return On Capital Employed (ROCE): What Is It?

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 Applied Industrial Technologies is:

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

0.21 = US$489m ÷ (US$2.8b - US$449m) (Based on the trailing twelve months to December 2023).

Therefore, Applied Industrial Technologies has an ROCE of 21%. That's a fantastic return and not only that, it outpaces the average of 13% earned by companies in a similar industry.

Check out our latest analysis for Applied Industrial Technologies

In the above chart we have measured Applied Industrial Technologies' 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 Applied Industrial Technologies .

What Can We Tell From Applied Industrial Technologies' ROCE Trend?

Investors would be pleased with what's happening at Applied Industrial Technologies. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 21%. The amount of capital employed has increased too, by 23%. So we're very much inspired by what we're seeing at Applied Industrial Technologies thanks to its ability to profitably reinvest capital.

The Bottom Line

To sum it up, Applied Industrial Technologies has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. And a remarkable 248% total return over the last five years tells us that investors are expecting more good things to come in the future. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.

While Applied Industrial Technologies looks impressive, no company is worth an infinite price. The intrinsic value infographic for AIT helps visualize whether it is currently trading for a fair price.

If you'd like to see other companies earning high returns, check out our free list of companies earning high returns with solid balance sheets here.

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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.