We Think Richards Packaging Income Fund (TSE:RPI.UN) Might Have The DNA Of A Multi-Bagger

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base 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. Speaking of which, we noticed some great changes in Richards Packaging Income Fund's (TSE:RPI.UN) returns on capital, so let's have a look.

Understanding 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 Richards Packaging Income Fund, this is the formula:

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

0.38 = CA$92m ÷ (CA$339m - CA$99m) (Based on the trailing twelve months to March 2021).

Thus, Richards Packaging Income Fund has an ROCE of 38%. In absolute terms that's a great return and it's even better than the Packaging industry average of 14%.

See our latest analysis for Richards Packaging Income Fund

In the above chart we have measured Richards Packaging Income Fund's prior ROCE against its prior performance, but the future is arguably more important. If you'd like to see what analysts are forecasting going forward, you should check out our free report for Richards Packaging Income Fund.

What Can We Tell From Richards Packaging Income Fund's ROCE Trend?

We like the trends that we're seeing from Richards Packaging Income Fund. The data shows that returns on capital have increased substantially over the last five years to 38%. Basically the business is earning more per dollar of capital invested and in addition to that, 61% more capital is being employed now too. So we're very much inspired by what we're seeing at Richards Packaging Income Fund thanks to its ability to profitably reinvest capital.

What We Can Learn From Richards Packaging Income Fund's ROCE

All in all, it's terrific to see that Richards Packaging Income Fund is reaping the rewards from prior investments and is growing its capital base. Since the stock has returned a staggering 185% 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.

Richards Packaging Income Fund does have some risks though, and we've spotted 1 warning sign for Richards Packaging Income Fund that you might be interested in.

Richards Packaging Income Fund 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.

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