Stock Analysis

Sambhaav Media (NSE:SAMBHAAV) Will Will Want To Turn Around Its Return Trends

NSEI:SAMBHAAV
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To find a multi-bagger stock, what are the underlying trends we should look for in a business? One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing amount 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. Although, when we looked at Sambhaav Media (NSE:SAMBHAAV), it didn't seem to tick all of these boxes.

Understanding Return On Capital Employed (ROCE)

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. To calculate this metric for Sambhaav Media, this is the formula:

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

0.0097 = ₹9.3m ÷ (₹1.1b - ₹170m) (Based on the trailing twelve months to March 2021).

Thus, Sambhaav Media has an ROCE of 1.0%. Ultimately, that's a low return and it under-performs the Media industry average of 14%.

See our latest analysis for Sambhaav Media

roce
NSEI:SAMBHAAV Return on Capital Employed June 7th 2021

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

How Are Returns Trending?

In terms of Sambhaav Media's historical ROCE movements, the trend isn't fantastic. Around five years ago the returns on capital were 5.9%, but since then they've fallen to 1.0%. However it looks like Sambhaav Media 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.

On a side note, Sambhaav Media has done well to pay down its current liabilities to 15% of total assets. That could partly explain why the ROCE has dropped. Effectively this means their suppliers or short-term creditors are funding less of the business, which reduces some elements of risk. Some would claim this reduces the business' efficiency at generating ROCE since it is now funding more of the operations with its own money.

What We Can Learn From Sambhaav Media's ROCE

In summary, Sambhaav Media is reinvesting funds back into the business for growth but unfortunately it looks like sales haven't increased much just yet. And investors appear hesitant that the trends will pick up because the stock has fallen 40% in the last five years. All in all, the inherent trends aren't typical of multi-baggers, so if that's what you're after, we think you might have more luck elsewhere.

If you'd like to know more about Sambhaav Media, we've spotted 3 warning signs, and 2 of them are potentially serious.

While Sambhaav Media may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.

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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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