Konstelec Engineers (NSE:KONSTELEC) Might Have The Makings Of A Multi-Bagger

If you're looking for a multi-bagger, there's a few things to keep an eye out for. Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing 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. So when we looked at Konstelec Engineers (NSE:KONSTELEC) and its trend of ROCE, we really liked what we saw.

What Is 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. Analysts use this formula to calculate it for Konstelec Engineers:

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

0.17 = ₹177m ÷ (₹2.0b - ₹995m) (Based on the trailing twelve months to September 2024).

Thus, Konstelec Engineers has an ROCE of 17%. In absolute terms, that's a pretty normal return, and it's somewhat close to the Construction industry average of 15%.

View our latest analysis for Konstelec Engineers

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're interested in investigating Konstelec Engineers' past further, check out this free graph covering Konstelec Engineers' past earnings, revenue and cash flow.

The Trend Of ROCE

We like the trends that we're seeing from Konstelec Engineers. The numbers show that in the last three years, the returns generated on capital employed have grown considerably to 17%. The amount of capital employed has increased too, by 84%. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.

Another thing to note, Konstelec Engineers has a high ratio of current liabilities to total assets of 50%. This can bring about some risks because the company is basically operating with a rather large reliance on its suppliers or other sorts of short-term creditors. While it's not necessarily a bad thing, it can be beneficial if this ratio is lower.

Our Take On Konstelec Engineers' ROCE

All in all, it's terrific to see that Konstelec Engineers is reaping the rewards from prior investments and is growing its capital base. Given the stock has declined 60% in the last year, this could be a good investment if the valuation and other metrics are also appealing. So researching this company further and determining whether or not these trends will continue seems justified.

Since virtually every company faces some risks, it's worth knowing what they are, and we've spotted 3 warning signs for Konstelec Engineers (of which 1 can't be ignored!) that you should know about.

While Konstelec Engineers 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.