Will Quick Heal Technologies (NSE:QUICKHEAL) Multiply In Value Going Forward?

To find a multi-bagger stock, what are the underlying trends we should look for in a business? Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. However, after investigating Quick Heal Technologies (NSE:QUICKHEAL), we don't think it's current trends fit the mold of a multi-bagger.

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. To calculate this metric for Quick Heal Technologies, this is the formula:

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

0.13 = ₹896m ÷ (₹7.3b - ₹634m) (Based on the trailing twelve months to June 2020).

So, Quick Heal Technologies has an ROCE of 13%. That's a relatively normal return on capital, and it's around the 12% generated by the Software industry.

Check out our latest analysis for Quick Heal Technologies

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're interested in investigating Quick Heal Technologies' past further, check out this free graph of past earnings, revenue and cash flow.

What Does the ROCE Trend For Quick Heal Technologies Tell Us?

When we looked at the ROCE trend at Quick Heal Technologies, we didn't gain much confidence. Over the last five years, returns on capital have decreased to 13% from 18% five years ago. Meanwhile, the business is utilizing more capital but this hasn't moved the needle much in terms of sales in the past 12 months, so this could reflect longer term investments. It's worth keeping an eye on the company's earnings from here on to see if these investments do end up contributing to the bottom line.

On a side note, Quick Heal Technologies has done well to pay down its current liabilities to 8.6% of total assets. So we could link some of this to the decrease in ROCE. Effectively this means their suppliers or short-term creditors are funding less of the business, which reduces some elements of risk. Some would claim this reduces the business' efficiency at generating ROCE since it is now funding more of the operations with its own money.

The Key Takeaway

To conclude, we've found that Quick Heal Technologies is reinvesting in the business, but returns have been falling. And with the stock having returned a mere 1.7% in the last three years to shareholders, you could argue that they're aware of these lackluster trends. So if you're looking for a multi-bagger, the underlying trends indicate you may have better chances elsewhere.

One more thing, we've spotted 2 warning signs facing Quick Heal Technologies that you might find interesting.

While Quick Heal Technologies 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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