We Think Gandhi Special Tubes (NSE:GANDHITUBE) Might Have The DNA Of A Multi-Bagger

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? 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. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. And in light of that, the trends we're seeing at Gandhi Special Tubes' (NSE:GANDHITUBE) look very promising so lets take a look.

Return On Capital Employed (ROCE): What Is It?

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 Gandhi Special Tubes is:

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

0.31 = ₹490m ÷ (₹1.7b - ₹97m) (Based on the trailing twelve months to September 2022).

Therefore, Gandhi Special Tubes has an ROCE of 31%. In absolute terms that's a great return and it's even better than the Metals and Mining industry average of 16%.

Check out the opportunities and risks within the IN Metals and Mining industry.

While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you'd like to look at how Gandhi Special Tubes has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.

So How Is Gandhi Special Tubes' ROCE Trending?

We're pretty happy with how the ROCE has been trending at Gandhi Special Tubes. The data shows that returns on capital have increased by 107% over the trailing five years. That's a very favorable trend because this means that the company is earning more per dollar of capital that's being employed. In regards to capital employed, Gandhi Special Tubes appears to been achieving more with less, since the business is using 22% less capital to run its operation. If this trend continues, the business might be getting more efficient but it's shrinking in terms of total assets.

In Conclusion...

In summary, it's great to see that Gandhi Special Tubes has been able to turn things around and earn higher returns on lower amounts of capital. Since the stock has returned a solid 75% to shareholders over the last five years, it's fair to say investors are beginning to recognize these changes. Therefore, we think it would be worth your time to check if these trends are going to continue.

On a final note, we've found 1 warning sign for Gandhi Special Tubes that we think you should be aware of.

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.