Has Akash Infra-Projects (NSE:AKASH) Got What It Takes To Become A Multi-Bagger?

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing amount 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. However, after investigating Akash Infra-Projects (NSE:AKASH), 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. To calculate this metric for Akash Infra-Projects, this is the formula:

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

0.029 = ₹27m ÷ (₹1.2b - ₹336m) (Based on the trailing twelve months to September 2020).

So, Akash Infra-Projects has an ROCE of 2.9%. In absolute terms, that's a low return and it also under-performs the Construction industry average of 9.1%.

See our latest analysis for Akash Infra-Projects

Historical performance is a great place to start when researching a stock so above you can see the gauge for Akash Infra-Projects' ROCE against it's prior returns. If you want to delve into the historical earnings, revenue and cash flow of Akash Infra-Projects, check out these free graphs here.

What Does the ROCE Trend For Akash Infra-Projects Tell Us?

On the surface, the trend of ROCE at Akash Infra-Projects doesn't inspire confidence. To be more specific, ROCE has fallen from 9.0% over the last five years. And considering revenue has dropped while employing more capital, we'd be cautious. If this were to continue, you might be looking at a company that is trying to reinvest for growth but is actually losing market share since sales haven't increased.

The Bottom Line On Akash Infra-Projects' ROCE

We're a bit apprehensive about Akash Infra-Projects because despite more capital being deployed in the business, returns on that capital and sales have both fallen. Since the stock has skyrocketed 482% over the last three years, it looks like investors have high expectations of the stock. Regardless, we don't feel too comfortable with the fundamentals so we'd be steering clear of this stock for now.

Akash Infra-Projects does come with some risks though, we found 2 warning signs in our investment analysis, and 1 of those is significant...

While Akash Infra-Projects 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. 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.
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