Shareholders Are Optimistic That Astral (NSE:ASTRAL) Will Multiply In Value

What trends should we look for it we want to identify stocks that can multiply in value over the long term? Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base 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. That's why when we briefly looked at Astral's (NSE:ASTRAL) ROCE trend, we were very happy with what we saw.

Understanding Return On Capital Employed (ROCE)

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. The formula for this calculation on Astral is:

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

0.23 = ₹7.3b ÷ (₹43b - ₹12b) (Based on the trailing twelve months to September 2023).

Thus, Astral has an ROCE of 23%. In absolute terms that's a great return and it's even better than the Building industry average of 17%.

See our latest analysis for Astral

In the above chart we have measured Astral's prior ROCE against its prior performance, but the future is arguably more important. If you'd like, you can check out the forecasts from the analysts covering Astral here for free.

What Can We Tell From Astral's ROCE Trend?

It's hard not to be impressed by Astral's returns on capital. Over the past five years, ROCE has remained relatively flat at around 23% and the business has deployed 129% more capital into its operations. Returns like this are the envy of most businesses and given it has repeatedly reinvested at these rates, that's even better. If Astral can keep this up, we'd be very optimistic about its future.

What We Can Learn From Astral's ROCE

In summary, we're delighted to see that Astral has been compounding returns by reinvesting at consistently high rates of return, as these are common traits of a multi-bagger. And the stock has done incredibly well with a 269% return over the last five years, so long term investors are no doubt ecstatic with that result. So while the positive underlying trends may be accounted for by investors, we still think this stock is worth looking into further.

Astral does have some risks though, and we've spotted 1 warning sign for Astral that you might be interested in.

Astral is not the only stock earning high returns. If you'd like to see more, check out our free list of companies earning high returns on equity with solid fundamentals.

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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.