ADF Foods (NSE:ADFFOODS) Could Become A Multi-Bagger

To find a multi-bagger stock, what are the underlying trends we should look for in a business? In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. And in light of that, the trends we're seeing at ADF Foods' (NSE:ADFFOODS) look very promising so lets take a look.

Understanding 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. The formula for this calculation on ADF Foods is:

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

0.22 = ₹611m ÷ (₹3.3b - ₹451m) (Based on the trailing twelve months to June 2021).

So, ADF Foods has an ROCE of 22%. That's a fantastic return and not only that, it outpaces the average of 12% earned by companies in a similar industry.

Check out our latest analysis for ADF Foods

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

What Does the ROCE Trend For ADF Foods Tell Us?

ADF Foods is displaying some positive trends. Over the last five years, returns on capital employed have risen substantially to 22%. The amount of capital employed has increased too, by 68%. So we're very much inspired by what we're seeing at ADF Foods thanks to its ability to profitably reinvest capital.

In Conclusion...

A company that is growing its returns on capital and can consistently reinvest in itself is a highly sought after trait, and that's what ADF Foods has. And a remarkable 639% total return over the last five years tells us that investors are expecting more good things to come in the future. In light of that, we think it's worth looking further into this stock because if ADF Foods can keep these trends up, it could have a bright future ahead.

On the other side of ROCE, we have to consider valuation. That's why we have a FREE intrinsic value estimation on our platform that is definitely worth checking out.

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.
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