Shiva Texyarn (NSE:SHIVATEX) Has More To Do To Multiply In Value Going Forward

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. Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. However, after investigating Shiva Texyarn (NSE:SHIVATEX), we don't think it's current trends fit the mold of a multi-bagger.

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 Shiva Texyarn, this is the formula:

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

0.18 = ₹395m ÷ (₹3.3b - ₹1.1b) (Based on the trailing twelve months to September 2021).

Therefore, Shiva Texyarn has an ROCE of 18%. In absolute terms, that's a satisfactory return, but compared to the Luxury industry average of 13% it's much better.

Check out our latest analysis for Shiva Texyarn

Historical performance is a great place to start when researching a stock so above you can see the gauge for Shiva Texyarn's ROCE against it's prior returns. If you'd like to look at how Shiva Texyarn has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.

What Does the ROCE Trend For Shiva Texyarn Tell Us?

Things have been pretty stable at Shiva Texyarn, with its capital employed and returns on that capital staying somewhat the same for the last five years. Businesses with these traits tend to be mature and steady operations because they're past the growth phase. So unless we see a substantial change at Shiva Texyarn in terms of ROCE and additional investments being made, we wouldn't hold our breath on it being a multi-bagger.

The Bottom Line

In summary, Shiva Texyarn isn't compounding its earnings but is generating stable returns on the same amount of capital employed. Although the market must be expecting these trends to improve because the stock has gained 62% over the last three years. However, unless these underlying trends turn more positive, we wouldn't get our hopes up too high.

Shiva Texyarn does come with some risks though, we found 6 warning signs in our investment analysis, and 2 of those are significant...

While Shiva Texyarn may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.