Is Kelly Partners Group Holdings (ASX:KPG) A Compounding Machine?

If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out for. 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. 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 ran our eye over Kelly Partners Group Holdings' (ASX:KPG) trend of ROCE, we really liked what we saw.

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

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. The formula for this calculation on Kelly Partners Group Holdings is:

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

0.29 = AU$12m ÷ (AU$58m - AU$15m) (Based on the trailing twelve months to June 2020).

So, Kelly Partners Group Holdings has an ROCE of 29%. In absolute terms that's a great return and it's even better than the Professional Services industry average of 17%.

Check out our latest analysis for Kelly Partners Group Holdings

Above you can see how the current ROCE for Kelly Partners Group Holdings compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like to see what analysts are forecasting going forward, you should check out our free report for Kelly Partners Group Holdings.

The Trend Of ROCE

It's hard not to be impressed by Kelly Partners Group Holdings' returns on capital. The company has consistently earned 29% for the last five years, and the capital employed within the business has risen 141% in that time. Returns like this are the envy of most businesses and given it has repeatedly reinvested at these rates, that's even better. If Kelly Partners Group Holdings can keep this up, we'd be very optimistic about its future.

The Key Takeaway

Kelly Partners Group Holdings has demonstrated its proficiency by generating high returns on increasing amounts of capital employed, which we're thrilled about. And since the stock has risen strongly over the last three years, it appears the market might expect this trend to continue. So while investors seem to be recognizing these promising trends, we still believe the stock deserves further research.

On a separate note, we've found 5 warning signs for Kelly Partners Group Holdings you'll probably want to know about.

Kelly Partners Group Holdings is not the only stock earning high returns. If you'd like to see more, check out our free list of companies earning high returns on equity with solid fundamentals.

If you’re looking to trade Kelly Partners Group Holdings, open an account with the lowest-cost* platform trusted by professionals, Interactive Brokers. Their clients from over 200 countries and territories trade stocks, options, futures, forex, bonds and funds worldwide from a single integrated account. Promoted

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.
^*Interactive Brokers Rated Lowest Cost Broker by StockBrokers.com Annual Online Review 2020

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.