Shareholders Would Enjoy A Repeat Of PIX Transmissions' (NSE:PIXTRANS) Recent Growth In Returns

To find a multi-bagger stock, what are the underlying trends we should look for in a business? Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. Speaking of which, we noticed some great changes in PIX Transmissions' (NSE:PIXTRANS) returns on capital, so let's have a look.

Return On Capital Employed (ROCE): What Is It?

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. To calculate this metric for PIX Transmissions, this is the formula:

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

0.20 = ₹1.3b ÷ (₹7.1b - ₹855m) (Based on the trailing twelve months to September 2024).

Therefore, PIX Transmissions has an ROCE of 20%. In absolute terms that's a great return and it's even better than the Machinery industry average of 16%.

See our latest analysis for PIX Transmissions

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

The Trend Of ROCE

PIX Transmissions is displaying some positive trends. The data shows that returns on capital have increased substantially over the last five years to 20%. The company is effectively making more money per dollar of capital used, and it's worth noting that the amount of capital has increased too, by 114%. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.

In another part of our analysis, we noticed that the company's ratio of current liabilities to total assets decreased to 12%, which broadly means the business is relying less on its suppliers or short-term creditors to fund its operations. This tells us that PIX Transmissions has grown its returns without a reliance on increasing their current liabilities, which we're very happy with.

In Conclusion...

In summary, it's great to see that PIX Transmissions can compound returns by consistently reinvesting capital at increasing rates of return, because these are some of the key ingredients of those highly sought after multi-baggers. And investors seem to expect more of this going forward, since the stock has rewarded shareholders with a 94% return over the last year. In light of that, we think it's worth looking further into this stock because if PIX Transmissions can keep these trends up, it could have a bright future ahead.

PIX Transmissions does come with some risks though, we found 2 warning signs in our investment analysis, and 1 of those can't be ignored...

High returns are a key ingredient to strong performance, so check out our free list ofstocks 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.