We Think ROX Hi-Tech (NSE:ROXHITECH) Might Have The DNA Of A Multi-Bagger

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? 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. 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 ROX Hi-Tech's (NSE:ROXHITECH) returns on capital, so let's have a look.

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What Is Return On Capital Employed (ROCE)?

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 ROX Hi-Tech is:

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

0.28 = ₹301m ÷ (₹2.0b - ₹914m) (Based on the trailing twelve months to September 2024).

Thus, ROX Hi-Tech has an ROCE of 28%. That's a fantastic return and not only that, it outpaces the average of 16% earned by companies in a similar industry.

View our latest analysis for ROX Hi-Tech

Historical performance is a great place to start when researching a stock so above you can see the gauge for ROX Hi-Tech's ROCE against it's prior returns. If you'd like to look at how ROX Hi-Tech has performed in the past in other metrics, you can view this free graph of ROX Hi-Tech's past earnings, revenue and cash flow.

What Can We Tell From ROX Hi-Tech's ROCE Trend?

The trends we've noticed at ROX Hi-Tech are quite reassuring. The data shows that returns on capital have increased substantially over the last three years to 28%. The amount of capital employed has increased too, by 715%. So we're very much inspired by what we're seeing at ROX Hi-Tech thanks to its ability to profitably reinvest capital.

In another part of our analysis, we noticed that the company's ratio of current liabilities to total assets decreased to 46%, which broadly means the business is relying less on its suppliers or short-term creditors to fund its operations. So this improvement in ROCE has come from the business' underlying economics, which is great to see. Nevertheless, there are some potential risks the company is bearing with current liabilities that high, so just keep that in mind.

The Key Takeaway

In summary, it's great to see that ROX Hi-Tech can compound returns by consistently reinvesting capital at increasing rates of return, because these are some of the key ingredients of those highly sought after multi-baggers. And since the stock has fallen 67% over the last year, there might be an opportunity here. That being the case, research into the company's current valuation metrics and future prospects seems fitting.

If you'd like to know more about ROX Hi-Tech, we've spotted 3 warning signs, and 2 of them are concerning.

High returns are a key ingredient to strong performance, so check out our free list ofstocks 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.