Nath Bio-Genes (India) (NSE:NATHBIOGEN) Has Some Way To Go To Become A Multi-Bagger

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, 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 briefly looking over the numbers, we don't think Nath Bio-Genes (India) (NSE:NATHBIOGEN) has the makings of a multi-bagger going forward, but let's have a look at why that may be.

What Is Return On Capital Employed (ROCE)?

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. The formula for this calculation on Nath Bio-Genes (India) is:

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

0.079 = ₹457m ÷ (₹7.9b - ₹2.2b) (Based on the trailing twelve months to March 2023).

Therefore, Nath Bio-Genes (India) has an ROCE of 7.9%. Ultimately, that's a low return and it under-performs the Food industry average of 13%.

View our latest analysis for Nath Bio-Genes (India)

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

SWOT Analysis for Nath Bio-Genes (India)

What The Trend Of ROCE Can Tell Us

There are better returns on capital out there than what we're seeing at Nath Bio-Genes (India). Over the past five years, ROCE has remained relatively flat at around 7.9% and the business has deployed 22% more capital into its operations. This poor ROCE doesn't inspire confidence right now, and with the increase in capital employed, it's evident that the business isn't deploying the funds into high return investments.

In Conclusion...

In summary, Nath Bio-Genes (India) has simply been reinvesting capital and generating the same low rate of return as before. And in the last five years, the stock has given away 58% so the market doesn't look too hopeful on these trends strengthening any time soon. On the whole, we aren't too inspired by the underlying trends and we think there may be better chances of finding a multi-bagger elsewhere.

If you'd like to know more about Nath Bio-Genes (India), we've spotted 3 warning signs, and 1 of them makes us a bit uncomfortable.

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and 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.