INDUS Holding (ETR:INH) Has More To Do To Multiply In Value Going Forward

Finding a business that has the potential to grow substantially is not easy, but it is possible if we look at a few key financial metrics. Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. However, after briefly looking over the numbers, we don't think INDUS Holding (ETR:INH) has the makings of a multi-bagger going forward, but let's have a look at why that may be.

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. The formula for this calculation on INDUS Holding is:

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

0.097 = €134m ÷ (€1.9b - €489m) (Based on the trailing twelve months to September 2024).

Thus, INDUS Holding has an ROCE of 9.7%. In absolute terms, that's a low return, but it's much better than the Industrials industry average of 7.1%.

Check out our latest analysis for INDUS Holding

In the above chart we have measured INDUS Holding's prior ROCE against its prior performance, but the future is arguably more important. If you're interested, you can view the analysts predictions in our free analyst report for INDUS Holding .

What The Trend Of ROCE Can Tell Us

Things have been pretty stable at INDUS Holding, with its capital employed and returns on that capital staying somewhat the same for the last five years. Businesses with these traits tend to be mature and steady operations because they're past the growth phase. So unless we see a substantial change at INDUS Holding in terms of ROCE and additional investments being made, we wouldn't hold our breath on it being a multi-bagger. This probably explains why INDUS Holding is paying out 46% of its income to shareholders in the form of dividends. Given the business isn't reinvesting in itself, it makes sense to distribute a portion of earnings among shareholders.

The Bottom Line

In summary, INDUS Holding isn't compounding its earnings but is generating stable returns on the same amount of capital employed. Since the stock has declined 41% over the last five years, investors may not be too optimistic on this trend improving either. Therefore based on the analysis done in this article, we don't think INDUS Holding has the makings of a multi-bagger.

One more thing to note, we've identified 3 warning signs with INDUS Holding and understanding them should be part of your investment process.

While INDUS Holding 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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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.