Sheetal Cool Products (NSE:SCPL) Could Become A Multi-Bagger

What trends should we look for it we want to identify stocks that can multiply in value over the long term? 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. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. With that in mind, the ROCE of Sheetal Cool Products (NSE:SCPL) looks great, so lets see what the trend can tell us.

Understanding 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. Analysts use this formula to calculate it for Sheetal Cool Products:

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

0.25 = ₹339m ÷ (₹2.2b - ₹815m) (Based on the trailing twelve months to December 2023).

So, Sheetal Cool Products has an ROCE of 25%. That's a fantastic return and not only that, it outpaces the average of 15% earned by companies in a similar industry.

See our latest analysis for Sheetal Cool Products

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

So How Is Sheetal Cool Products' ROCE Trending?

Investors would be pleased with what's happening at Sheetal Cool Products. 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 68%. 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 Sheetal Cool Products' ROCE

To sum it up, Sheetal Cool Products has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. Astute investors may have an opportunity here because the stock has declined 38% in the last year. With that in mind, we believe the promising trends warrant this stock for further investigation.

Like most companies, Sheetal Cool Products does come with some risks, and we've found 2 warning signs that you should be aware of.

If you'd like to see other companies earning high returns, check out our free list of companies earning high returns with solid balance sheets here.

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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.