Is Texmo Pipes and Products (NSE:TEXMOPIPES) Likely To Turn Things Around?

If you're looking for a multi-bagger, there's a few things to keep an eye out for. Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. In light of that, when we looked at Texmo Pipes and Products (NSE:TEXMOPIPES) and its ROCE trend, we weren't exactly thrilled.

Return On Capital Employed (ROCE): What is it?

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 Texmo Pipes and Products is:

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

0.067 = ₹162m ÷ (₹3.4b - ₹1.0b) (Based on the trailing twelve months to March 2020).

Therefore, Texmo Pipes and Products has an ROCE of 6.7%. Ultimately, that's a low return and it under-performs the Chemicals industry average of 14%.

See our latest analysis for Texmo Pipes and Products

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 Texmo Pipes and Products has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.

What Can We Tell From Texmo Pipes and Products' ROCE Trend?

In terms of Texmo Pipes and Products' historical ROCE movements, the trend isn't fantastic. Over the last five years, returns on capital have decreased to 6.7% from 11% five years ago. However it looks like Texmo Pipes and Products might be reinvesting for long term growth because while capital employed has increased, the company's sales haven't changed much in the last 12 months. It's worth keeping an eye on the company's earnings from here on to see if these investments do end up contributing to the bottom line.

The Key Takeaway

In summary, Texmo Pipes and Products is reinvesting funds back into the business for growth but unfortunately it looks like sales haven't increased much just yet. Since the stock has declined 19% over the last five years, investors may not be too optimistic on this trend improving either. On the whole, we aren't too inspired by the underlying trends and we think there may be better chances of finding a multi-bagger elsewhere.

One more thing: We've identified 2 warning signs with Texmo Pipes and Products (at least 1 which can't be ignored) , and understanding these would certainly be useful.

While Texmo Pipes and Products isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

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This article by Simply Wall St is general in nature. 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.
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