Superhouse (NSE:SUPERHOUSE) Has Some Way To Go To Become A Multi-Bagger

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing 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. With that in mind, the ROCE of Superhouse (NSE:SUPERHOUSE) looks decent, right now, so lets see what the trend of returns can tell us.

What is Return On Capital Employed (ROCE)?

For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. The formula for this calculation on Superhouse is:

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

0.11 = ₹466m ÷ (₹7.1b - ₹2.8b) (Based on the trailing twelve months to December 2021).

Therefore, Superhouse has an ROCE of 11%. In absolute terms, that's a pretty standard return but compared to the Luxury industry average it falls behind.

Check out our latest analysis for Superhouse

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

What Can We Tell From Superhouse's ROCE Trend?

While the returns on capital are good, they haven't moved much. The company has consistently earned 11% for the last five years, and the capital employed within the business has risen 25% in that time. 11% is a pretty standard return, and it provides some comfort knowing that Superhouse has consistently earned this amount. Over long periods of time, returns like these might not be too exciting, but with consistency they can pay off in terms of share price returns.

On a separate but related note, it's important to know that Superhouse has a current liabilities to total assets ratio of 40%, which we'd consider pretty high. 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.

What We Can Learn From Superhouse's ROCE

The main thing to remember is that Superhouse has proven its ability to continually reinvest at respectable rates of return. And given the stock has only risen 29% over the last five years, we'd suspect the market is beginning to recognize these trends. So to determine if Superhouse is a multi-bagger going forward, we'd suggest digging deeper into the company's other fundamentals.

If you'd like to know about the risks facing Superhouse, we've discovered 3 warning signs that you should be aware of.

While Superhouse 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.