Does Mangalam Cement (NSE:MANGLMCEM) Have The Makings Of A Multi-Bagger?

There are a few key trends to look for if we want to identify the next 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. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. With that in mind, we've noticed some promising trends at Mangalam Cement (NSE:MANGLMCEM) so let's look a bit deeper.

What is Return On Capital Employed (ROCE)?

For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. The formula for this calculation on Mangalam Cement is:

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

0.12 = ₹1.3b ÷ (₹17b - ₹5.5b) (Based on the trailing twelve months to September 2020).

Therefore, Mangalam Cement has an ROCE of 12%. That's a relatively normal return on capital, and it's around the 11% generated by the Basic Materials industry.

Check out our latest analysis for Mangalam Cement

Historical performance is a great place to start when researching a stock so above you can see the gauge for Mangalam Cement's ROCE against it's prior returns. If you're interested in investigating Mangalam Cement's past further, check out this free graph of past earnings, revenue and cash flow.

What The Trend Of ROCE Can Tell Us

We're delighted to see that Mangalam Cement is reaping rewards from its investments and is now generating some pre-tax profits. About five years ago the company was generating losses but things have turned around because it's now earning 12% on its capital. In addition to that, Mangalam Cement is employing 20% more capital than previously which is expected of a company that's trying to break into profitability. We like this trend, because it tells us the company has profitable reinvestment opportunities available to it, and if it continues going forward that can lead to a multi-bagger performance.

The Bottom Line

Long story short, we're delighted to see that Mangalam Cement's reinvestment activities have paid off and the company is now profitable. Considering the stock has delivered 7.9% to its stockholders over the last five years, it may be fair to think that investors aren't fully aware of the promising trends yet. Given that, we'd look further into this stock in case it has more traits that could make it multiply in the long term.

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

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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