Go Fashion (India) (NSE:GOCOLORS) Has Some Way To Go To Become A Multi-Bagger

To find a multi-bagger stock, what are the underlying trends we should look for in a business? Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base 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. So, when we ran our eye over Go Fashion (India)'s (NSE:GOCOLORS) trend of ROCE, we liked what we saw.

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. To calculate this metric for Go Fashion (India), this is the formula:

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

0.16 = ₹1.4b ÷ (₹10b - ₹1.2b) (Based on the trailing twelve months to December 2023).

Thus, Go Fashion (India) has an ROCE of 16%. In absolute terms, that's a pretty normal return, and it's somewhat close to the Specialty Retail industry average of 17%.

View our latest analysis for Go Fashion (India)

In the above chart we have measured Go Fashion (India)'s prior ROCE against its prior performance, but the future is arguably more important. If you're interested, you can view the analysts predictions in our free analyst report for Go Fashion (India) .

What Can We Tell From Go Fashion (India)'s ROCE Trend?

While the current returns on capital are decent, they haven't changed much. Over the past four years, ROCE has remained relatively flat at around 16% and the business has deployed 109% more capital into its operations. 16% is a pretty standard return, and it provides some comfort knowing that Go Fashion (India) has consistently earned this amount. Over long periods of time, returns like these might not be too exciting, but with consistency they can pay off in terms of share price returns.

The Key Takeaway

To sum it up, Go Fashion (India) has simply been reinvesting capital steadily, at those decent rates of return. And the stock has followed suit returning a meaningful 19% to shareholders over the last year. So while the positive underlying trends may be accounted for by investors, we still think this stock is worth looking into further.

If you're still interested in Go Fashion (India) it's worth checking out our FREE intrinsic value approximation for GOCOLORS to see if it's trading at an attractive price in other respects.

While Go Fashion (India) 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.