If you're looking for a multi-bagger, there's a few things to keep an eye out for. Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's amount of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. However, after investigating Enjoy (SNSE:ENJOY), we don't think it's current trends fit the mold of a multi-bagger.
Return On Capital Employed (ROCE): What Is It?
For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. Analysts use this formula to calculate it for Enjoy:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.0091 = CL$4.5b ÷ (CL$696b - CL$203b) (Based on the trailing twelve months to December 2024).
Thus, Enjoy has an ROCE of 0.9%. In absolute terms, that's a low return and it also under-performs the Hospitality industry average of 8.1%.
Check out our latest analysis for Enjoy
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'd like to look at how Enjoy has performed in the past in other metrics, you can view this free graph of Enjoy's past earnings, revenue and cash flow.
So How Is Enjoy's ROCE Trending?
Over the past five years, Enjoy's ROCE and capital employed have both remained mostly flat. This tells us the company isn't reinvesting in itself, so it's plausible that it's past the growth phase. So unless we see a substantial change at Enjoy in terms of ROCE and additional investments being made, we wouldn't hold our breath on it being a multi-bagger.
In Conclusion...
In a nutshell, Enjoy has been trudging along with the same returns from the same amount of capital over the last five years. Moreover, since the stock has crumbled 96% over the last five years, it appears investors are expecting the worst. Therefore based on the analysis done in this article, we don't think Enjoy has the makings of a multi-bagger.
Enjoy does have some risks though, and we've spotted 4 warning signs for Enjoy that you might be interested in.
If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive returns on equity.
Valuation is complex, but we're here to simplify it.
Discover if Enjoy might be undervalued or overvalued with our detailed analysis, featuring fair value estimates, potential risks, dividends, insider trades, and its financial condition.
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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. 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.