Jain Irrigation Systems (NSE:JISLJALEQS) Has More To Do To Multiply In Value Going Forward

There are a few key trends to look for if we want to identify the next multi-bagger. Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, 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 briefly looking over the numbers, we don't think Jain Irrigation Systems (NSE:JISLJALEQS) has the makings of a multi-bagger going forward, but let's have a look at why that may be.

What Is Return On Capital Employed (ROCE)?

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. Analysts use this formula to calculate it for Jain Irrigation Systems:

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

0.07 = ₹5.1b ÷ (₹112b - ₹40b) (Based on the trailing twelve months to June 2024).

Therefore, Jain Irrigation Systems has an ROCE of 7.0%. Ultimately, that's a low return and it under-performs the Machinery industry average of 17%.

See our latest analysis for Jain Irrigation Systems

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

So How Is Jain Irrigation Systems' ROCE Trending?

Over the past five years, Jain Irrigation Systems' 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 don't be surprised if Jain Irrigation Systems doesn't end up being a multi-bagger in a few years time.

Our Take On Jain Irrigation Systems' ROCE

In a nutshell, Jain Irrigation Systems has been trudging along with the same returns from the same amount of capital over the last five years. Yet to long term shareholders the stock has gifted them an incredible 252% return in the last five years, so the market appears to be rosy about its future. But if the trajectory of these underlying trends continue, we think the likelihood of it being a multi-bagger from here isn't high.

One more thing, we've spotted 1 warning sign facing Jain Irrigation Systems that you might find interesting.

While Jain Irrigation Systems 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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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.