Jumbo Interactive (ASX:JIN) Could Become A Multi-Bagger

If you're looking for a multi-bagger, there's a few things to keep an eye out for. Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. So when we looked at the ROCE trend of Jumbo Interactive (ASX:JIN) 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 Jumbo Interactive is:

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

0.41 = AU$36m ÷ (AU$111m - AU$24m) (Based on the trailing twelve months to December 2020).

Therefore, Jumbo Interactive has an ROCE of 41%. In absolute terms that's a great return and it's even better than the Hospitality industry average of 9.1%.

Check out our latest analysis for Jumbo Interactive

Above you can see how the current ROCE for Jumbo Interactive compares to its prior returns on capital, but there's only so much you can tell from the past. If you're interested, you can view the analysts predictions in our free report on analyst forecasts for the company.

So How Is Jumbo Interactive's ROCE Trending?

The trends we've noticed at Jumbo Interactive are quite reassuring. The data shows that returns on capital have increased substantially over the last five years to 41%. The amount of capital employed has increased too, by 276%. So we're very much inspired by what we're seeing at Jumbo Interactive thanks to its ability to profitably reinvest capital.

On a related note, the company's ratio of current liabilities to total assets has decreased to 22%, which basically reduces it's funding from the likes of short-term creditors or suppliers. Therefore we can rest assured that the growth in ROCE is a result of the business' fundamental improvements, rather than a cooking class featuring this company's books.

Our Take On Jumbo Interactive's ROCE

A company that is growing its returns on capital and can consistently reinvest in itself is a highly sought after trait, and that's what Jumbo Interactive has. Since the stock has returned a staggering 1,383% to shareholders over the last five years, it looks like investors are recognizing these changes. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.

If you want to know some of the risks facing Jumbo Interactive we've found 3 warning signs (1 is potentially serious!) that you should be aware of before investing here.

If you'd like to see other companies earning high returns, check out our free list of companies earning high returns with solid balance sheets here.

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