SKM Egg Products Export (India) (NSE:SKMEGGPROD) 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? Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. So when we looked at the ROCE trend of SKM Egg Products Export (India) (NSE:SKMEGGPROD) we really liked what we saw.
Return On Capital Employed (ROCE): What Is It?
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 SKM Egg Products Export (India) is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.43 = ₹673m ÷ (₹2.8b - ₹1.3b) (Based on the trailing twelve months to December 2022).
So, SKM Egg Products Export (India) has an ROCE of 43%. 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 SKM Egg Products Export (India)
Historical performance is a great place to start when researching a stock so above you can see the gauge for SKM Egg Products Export (India)'s ROCE against it's prior returns. If you want to delve into the historical earnings, revenue and cash flow of SKM Egg Products Export (India), check out these free graphs here.
How Are Returns Trending?
SKM Egg Products Export (India) has recently broken into profitability so their prior investments seem to be paying off. Shareholders would no doubt be pleased with this because the business was loss-making five years ago but is is now generating 43% on its capital. Not only that, but the company is utilizing 58% more capital than before, but that's to be expected from a company trying to break into profitability. This can tell us that the company has plenty of reinvestment opportunities that are able to generate higher returns.
On a side note, SKM Egg Products Export (India)'s current liabilities are still rather high at 45% of total assets. This effectively means that suppliers (or short-term creditors) are funding a large portion of the business, so just be aware that this can introduce some elements of risk. While it's not necessarily a bad thing, it can be beneficial if this ratio is lower.
The Bottom Line
Long story short, we're delighted to see that SKM Egg Products Export (India)'s reinvestment activities have paid off and the company is now profitable. And with a respectable 53% awarded to those who held the stock over the last five years, you could argue that these developments are starting to get the attention they deserve. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.
If you'd like to know more about SKM Egg Products Export (India), we've spotted 3 warning signs, and 2 of them don't sit too well with us.
High returns are a key ingredient to strong performance, so check out our free list ofstocks earning high returns on equity with solid balance sheets.
Valuation is complex, but we're helping make it simple.
Find out whether SKM Egg Products Export (India) is potentially over or undervalued by checking out our comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, insider transactions and financial health.View the Free Analysis
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.
SKM Egg Products Export (India)
SKM Egg Products Export (India) Limited produces and sells eggs and egg products.
Outstanding track record with mediocre balance sheet.