We Think Wendt (India) (NSE:WENDT) Might Have The DNA Of A Multi-Bagger

To find a multi-bagger stock, what are the underlying trends we should look for in a business? One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing amount of capital employed. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. So when we looked at the ROCE trend of Wendt (India) (NSE:WENDT) we really liked what we saw.

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

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. The formula for this calculation on Wendt (India) is:

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

0.25 = ₹495m ÷ (₹2.3b - ₹374m) (Based on the trailing twelve months to September 2023).

So, Wendt (India) has an ROCE of 25%. That's a fantastic return and not only that, it outpaces the average of 17% earned by companies in a similar industry.

Check out our latest analysis for Wendt (India)

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 Wendt (India)'s past further, check out this free graph of past earnings, revenue and cash flow.

How Are Returns Trending?

Wendt (India) is displaying some positive trends. The data shows that returns on capital have increased substantially over the last five years to 25%. 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 48%. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, a combination that's common among multi-baggers.

Our Take On Wendt (India)'s ROCE

To sum it up, Wendt (India) has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. Since the stock has returned a staggering 400% to shareholders over the last five years, it looks like investors are recognizing these changes. So given the stock has proven it has promising trends, it's worth researching the company further to see if these trends are likely to persist.

Since virtually every company faces some risks, it's worth knowing what they are, and we've spotted 3 warning signs for Wendt (India) (of which 2 are significant!) that you should know about.

If you want to search for more stocks that have been earning high returns, check out this free list of stocks with solid balance sheets that are also earning high returns on equity.

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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.