Nucleus Software Exports (NSE:NUCLEUS) Could Become A Multi-Bagger

There are a few key trends to look for if we want to identify the next multi-bagger. Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. Speaking of which, we noticed some great changes in Nucleus Software Exports' (NSE:NUCLEUS) returns on capital, so let's have a look.

Understanding Return On Capital Employed (ROCE)

For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. Analysts use this formula to calculate it for Nucleus Software Exports:

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

0.32 = ₹2.3b ÷ (₹10.0b - ₹2.7b) (Based on the trailing twelve months to December 2023).

Therefore, Nucleus Software Exports has an ROCE of 32%. In absolute terms that's a great return and it's even better than the Software industry average of 15%.

View our latest analysis for Nucleus Software Exports

In the above chart we have measured Nucleus Software Exports' 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 Nucleus Software Exports .

How Are Returns Trending?

Investors would be pleased with what's happening at Nucleus Software Exports. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 32%. The company is effectively making more money per dollar of capital used, and it's worth noting that the amount of capital has increased too, by 51%. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.

In Conclusion...

To sum it up, Nucleus Software Exports has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. And with the stock having performed exceptionally well over the last five years, these patterns are being accounted for by investors. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.

If you want to continue researching Nucleus Software Exports, you might be interested to know about the 1 warning sign that our analysis has discovered.

Nucleus Software Exports is not the only stock earning high returns. If you'd like to see more, check out our free list of companies earning high returns on equity with solid fundamentals.

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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.