There are a few key trends to look for if we want to identify the next multi-bagger. Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base 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. So when we looked at Opera (NASDAQ:OPRA) and its trend of ROCE, we really liked what we saw.

Understanding Return On Capital Employed (ROCE)

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. To calculate this metric for Opera, this is the formula:

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

0.097 = US$92m ÷ (US$1.1b - US$101m) (Based on the trailing twelve months to December 2024).

So, Opera has an ROCE of 9.7%. On its own, that's a low figure but it's around the 9.2% average generated by the Software industry.

See our latest analysis for Opera

In the above chart we have measured Opera'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 Opera for free.

So How Is Opera's ROCE Trending?

Opera has broken into the black (profitability) and we're sure it's a sight for sore eyes. The company now earns 9.7% on its capital, because five years ago it was incurring losses. While returns have increased, the amount of capital employed by Opera has remained flat over the period. That being said, while an increase in efficiency is no doubt appealing, it'd be helpful to know if the company does have any investment plans going forward. After all, a company can only become a long term multi-bagger if it continually reinvests in itself at high rates of return.

The Bottom Line On Opera's ROCE

To sum it up, Opera is collecting higher returns from the same amount of capital, and that's impressive. Since the stock has returned a staggering 319% 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 Opera can keep these trends up, it could have a bright future ahead.

One more thing to note, we've identified 2 warning signs with Opera and understanding these should be part of your investment process.

While Opera may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list 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.