Is Pioneer Embroideries (NSE:PIONEEREMB) A Future Multi-bagger?

To find a multi-bagger stock, what are the underlying trends we should look for in a business? In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. So on that note, Pioneer Embroideries (NSE:PIONEEREMB) looks quite promising in regards to its trends of return on capital.

Return On Capital Employed (ROCE): What is it?

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 Pioneer Embroideries is:

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

0.098 = ₹103m ÷ (₹1.7b - ₹674m) (Based on the trailing twelve months to March 2020).

So, Pioneer Embroideries has an ROCE of 9.8%. Even though it's in line with the industry average of 9.9%, it's still a low return by itself.

See our latest analysis for Pioneer Embroideries

While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you'd like to look at how Pioneer Embroideries has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.

So How Is Pioneer Embroideries' ROCE Trending?

You'd find it hard not to be impressed with the ROCE trend at Pioneer Embroideries. We found that the returns on capital employed over the last five years have risen by 888%. The company is now earning ₹0.1 per dollar of capital employed. Speaking of capital employed, the company is actually utilizing 24% less than it was five years ago, which can be indicative of a business that's improving its efficiency. Pioneer Embroideries may be selling some assets so it's worth investigating if the business has plans for future investments to increase returns further still.

In another part of our analysis, we noticed that the company's ratio of current liabilities to total assets decreased to 39%, which broadly means the business is relying less on its suppliers or short-term creditors to fund its operations. So shareholders would be pleased that the growth in returns has mostly come from underlying business performance.

In Conclusion...

From what we've seen above, Pioneer Embroideries has managed to increase it's returns on capital all the while reducing it's capital base. Given the stock has declined 26% in the last five years, there could be a chance of a good investment here if the valuation makes sense. With that in mind, we believe the promising trends warrant this stock for further investigation.

If you'd like to know more about Pioneer Embroideries, we've spotted 4 warning signs, and 2 of them are concerning.

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. 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.
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