Shaily Engineering Plastics (NSE:SHAILY) Is Aiming To Keep Up Its Impressive Returns

If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should 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. With that in mind, the ROCE of Shaily Engineering Plastics (NSE:SHAILY) looks attractive right now, so lets see what the trend of returns can tell us.

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What Is Return On Capital Employed (ROCE)?

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. To calculate this metric for Shaily Engineering Plastics, this is the formula:

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

0.20 = ₹1.2b ÷ (₹8.2b - ₹2.4b) (Based on the trailing twelve months to December 2024).

Thus, Shaily Engineering Plastics 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 Shaily Engineering Plastics

In the above chart we have measured Shaily Engineering Plastics' 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 Shaily Engineering Plastics for free.

What Can We Tell From Shaily Engineering Plastics' ROCE Trend?

We'd be pretty happy with returns on capital like Shaily Engineering Plastics. The company has consistently earned 20% for the last five years, and the capital employed within the business has risen 178% in that time. With returns that high, it's great that the business can continually reinvest its money at such appealing rates of return. If these trends can continue, it wouldn't surprise us if the company became a multi-bagger.

The Key Takeaway

In summary, we're delighted to see that Shaily Engineering Plastics 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 421% return over the last three years, so long term investors are no doubt ecstatic with that result. So even though the stock might be more "expensive" than it was before, we think the strong fundamentals warrant this stock for further research.

Like most companies, Shaily Engineering Plastics does come with some risks, and we've found 1 warning sign that you should be aware of.

If you'd like to see other companies earning high returns, check out our free list of companies earning high returns with solid balance sheets here.

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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.