Niraku GC Holdings (HKG:1245) Has More To Do To Multiply In Value Going Forward

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. Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. However, after briefly looking over the numbers, we don't think Niraku GC Holdings (HKG:1245) has the makings of a multi-bagger going forward, but let's have a look at why that may be.

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. To calculate this metric for Niraku GC Holdings, this is the formula:

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

0.04 = JP¥2.1b ÷ (JP¥66b - JP¥13b) (Based on the trailing twelve months to September 2023).

Thus, Niraku GC Holdings has an ROCE of 4.0%. On its own that's a low return on capital but it's in line with the industry's average returns of 3.6%.

See our latest analysis for Niraku GC Holdings

Historical performance is a great place to start when researching a stock so above you can see the gauge for Niraku GC Holdings' ROCE against it's prior returns. If you're interested in investigating Niraku GC Holdings' past further, check out this free graph covering Niraku GC Holdings' past earnings, revenue and cash flow.

So How Is Niraku GC Holdings' ROCE Trending?

There are better returns on capital out there than what we're seeing at Niraku GC Holdings. The company has consistently earned 4.0% for the last five years, and the capital employed within the business has risen 23% in that time. This poor ROCE doesn't inspire confidence right now, and with the increase in capital employed, it's evident that the business isn't deploying the funds into high return investments.

What We Can Learn From Niraku GC Holdings' ROCE

In conclusion, Niraku GC Holdings has been investing more capital into the business, but returns on that capital haven't increased. And investors appear hesitant that the trends will pick up because the stock has fallen 51% in the last five years. 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.

If you'd like to know more about Niraku GC Holdings, we've spotted 4 warning signs, and 1 of them shouldn't be ignored.

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.

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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.