Will Genus Paper & Boards (NSE:GENUSPAPER) Multiply In Value Going Forward?

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount 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. Although, when we looked at Genus Paper & Boards (NSE:GENUSPAPER), it didn't seem to tick all of these boxes.

What is Return On Capital Employed (ROCE)?

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 Genus Paper & Boards is:

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

0.036 = ₹139m ÷ (₹4.7b - ₹857m) (Based on the trailing twelve months to March 2020).

Thus, Genus Paper & Boards has an ROCE of 3.6%. Ultimately, that's a low return and it under-performs the Forestry industry average of 11%.

See our latest analysis for Genus Paper & Boards

Historical performance is a great place to start when researching a stock so above you can see the gauge for Genus Paper & Boards' ROCE against it's prior returns. If you want to delve into the historical earnings, revenue and cash flow of Genus Paper & Boards, check out these free graphs here.

What The Trend Of ROCE Can Tell Us

Over the past five years, Genus Paper & Boards' ROCE and capital employed have both remained mostly flat. Businesses with these traits tend to be mature and steady operations because they're past the growth phase. So don't be surprised if Genus Paper & Boards doesn't end up being a multi-bagger in a few years time.

In Conclusion...

In a nutshell, Genus Paper & Boards has been trudging along with the same returns from the same amount of capital over the last five years. Unsurprisingly, the stock has only gained 4.3% over the last five years, which potentially indicates that investors are accounting for this going forward. As a result, if you're hunting for a multi-bagger, we think you'd have more luck elsewhere.

On a final note, we've found 2 warning signs for Genus Paper & Boards that we think you should be aware of.

While Genus Paper & Boards isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

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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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