Capital Investment Trends At APL Apollo Tubes (NSE:APLAPOLLO) Look Strong

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? 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. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. So, when we ran our eye over APL Apollo Tubes' (NSE:APLAPOLLO) trend of ROCE, we really liked what we saw.

What is 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. Analysts use this formula to calculate it for APL Apollo Tubes:

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

0.26 = ₹5.8b ÷ (₹34b - ₹12b) (Based on the trailing twelve months to March 2021).

Thus, APL Apollo Tubes has an ROCE of 26%. In absolute terms that's a great return and it's even better than the Metals and Mining industry average of 12%.

Check out our latest analysis for APL Apollo Tubes

Above you can see how the current ROCE for APL Apollo Tubes compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like, you can check out the forecasts from the analysts covering APL Apollo Tubes here for free.

What The Trend Of ROCE Can Tell Us

We'd be pretty happy with returns on capital like APL Apollo Tubes. The company has employed 162% more capital in the last five years, and the returns on that capital have remained stable at 26%. Returns like this are the envy of most businesses and given it has repeatedly reinvested at these rates, that's even better. If APL Apollo Tubes can keep this up, we'd be very optimistic about its future.

On a side note, APL Apollo Tubes has done well to reduce current liabilities to 35% of total assets over the last five years. This can eliminate some of the risks inherent in the operations because the business has less outstanding obligations to their suppliers and or short-term creditors than they did previously.

The Key Takeaway

In short, we'd argue APL Apollo Tubes has the makings of a multi-bagger since its been able to compound its capital at very profitable rates of return. And long term investors would be thrilled with the 790% return they've received over the last five years. So even though the stock might be more "expensive" than it was before, we think the strong fundamentals warrant this stock for further research.

If you want to continue researching APL Apollo Tubes, you might be interested to know about the 2 warning signs that our analysis has discovered.

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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