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. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. Having said that, from a first glance at Nibsa (SNSE:NIBSA) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper look.
Understanding Return On Capital Employed (ROCE)
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 Nibsa is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) Ă· (Total Assets - Current Liabilities)
0.021 = CL$278m Ă· (CL$15b - CL$1.5b) (Based on the trailing twelve months to December 2020).
Therefore, Nibsa has an ROCE of 2.1%. In absolute terms, that's a low return and it also under-performs the Building industry average of 10%.
See our latest analysis for Nibsa
Historical performance is a great place to start when researching a stock so above you can see the gauge for Nibsa's ROCE against it's prior returns. If you're interested in investigating Nibsa's past further, check out this free graph of past earnings, revenue and cash flow.
What Does the ROCE Trend For Nibsa Tell Us?
Things have been pretty stable at Nibsa, with its capital employed and returns on that capital staying somewhat the same for the last five years. This tells us the company isn't reinvesting in itself, so it's plausible that it's past the growth phase. With that in mind, unless investment picks up again in the future, we wouldn't expect Nibsa to be a multi-bagger going forward.
In Conclusion...
In summary, Nibsa isn't compounding its earnings but is generating stable returns on the same amount of capital employed. And in the last five years, the stock has given away 18% so the market doesn't look too hopeful on these trends strengthening any time soon. In any case, the stock doesn't have these traits of a multi-bagger discussed above, so if that's what you're looking for, we think you'd have more luck elsewhere.
Nibsa does have some risks though, and we've spotted 1 warning sign for Nibsa that you might be interested in.
While Nibsa may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.
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About SNSE:NIBSA
Nibsa
Develops, manufactures, and sells plumbing, bathroom fitting, and other products and solutions in Chile.
Excellent balance sheet, good value and pays a dividend.