Stock Analysis

Will Everest Industries (NSE:EVERESTIND) Multiply In Value Going Forward?

NSEI:EVERESTIND
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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. Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding 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. However, after investigating Everest Industries (NSE:EVERESTIND), we don't think it's current trends fit the mold of a multi-bagger.

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 Everest Industries is:

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

0.11 = ₹654m ÷ (₹9.2b - ₹3.5b) (Based on the trailing twelve months to December 2020).

Therefore, Everest Industries has an ROCE of 11%. That's a relatively normal return on capital, and it's around the 10% generated by the Building industry.

See our latest analysis for Everest Industries

roce
NSEI:EVERESTIND Return on Capital Employed January 31st 2021

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 want to delve into the historical earnings, revenue and cash flow of Everest Industries, check out these free graphs here.

So How Is Everest Industries' ROCE Trending?

Over the past five years, Everest Industries' 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 Everest Industries in terms of ROCE and additional investments being made, we wouldn't hold our breath on it being a multi-bagger.

On a side note, Everest Industries has done well to reduce current liabilities to 38% of total assets over the last five years. This can eliminate some of the risks inherent in the operations because the business has less outstanding obligations to their suppliers and or short-term creditors than they did previously.

The Bottom Line

In summary, Everest Industries isn't compounding its earnings but is generating stable returns on the same amount of capital employed. And with the stock having returned a mere 33% in the last five years to shareholders, you could argue that they're aware of these lackluster trends. Therefore, if you're looking for a multi-bagger, we'd propose looking at other options.

One more thing, we've spotted 1 warning sign facing Everest Industries that you might find interesting.

While Everest Industries isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

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Valuation is complex, but we're helping make it simple.

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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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