Uflex (NSE:UFLEX) Might Have The Makings Of A Multi-Bagger
What are the early trends we should look for to identify a stock that could multiply in value over the long term? Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base 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. Speaking of which, we noticed some great changes in Uflex's (NSE:UFLEX) returns on capital, so let's have a look.
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. Analysts use this formula to calculate it for Uflex:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.15 = ₹16b ÷ (₹163b - ₹52b) (Based on the trailing twelve months to December 2022).
Therefore, Uflex has an ROCE of 15%. In absolute terms, that's a pretty normal return, and it's somewhat close to the Packaging industry average of 13%.
See our latest analysis for Uflex
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 want to delve into the historical earnings, revenue and cash flow of Uflex, check out these free graphs here.
What Can We Tell From Uflex's ROCE Trend?
Investors would be pleased with what's happening at Uflex. Over the last five years, returns on capital employed have risen substantially to 15%. The amount of capital employed has increased too, by 128%. So we're very much inspired by what we're seeing at Uflex thanks to its ability to profitably reinvest capital.
All in all, it's terrific to see that Uflex is reaping the rewards from prior investments and is growing its capital base. Investors may not be impressed by the favorable underlying trends yet because over the last five years the stock has only returned 8.0% to shareholders. Given that, we'd look further into this stock in case it has more traits that could make it multiply in the long term.
Uflex does have some risks though, and we've spotted 3 warning signs for Uflex that you might be interested in.
While Uflex 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. 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.
Uflex Limited manufactures and sells flexible packaging products and solutions in India.
Adequate balance sheet second-rate dividend payer.